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#8 “Truth-in-Advertising Assurance Set-Aside”


A Proposal to Help Steer the U.S. Economy Toward Sustainability

by Alan F. Kay and Hazel Henderson
© September 29, 1997
Online Version

The purpose of this proposal is to lower environmental and social costs by relatively small and painless (even pleasant) changes that yet have enormous potential leverage for transitioning our growth-based economy into longer-term sustainability. Under the proposal, companies would be required to set aside a small adjustable percentage (capped and averaging less than 3%) of their TV advertising tax exemption to fund "non-profit, certified, qualified, public interest TV and radio producers" ("called producers") to produce and air supplemental counter-advertising that relates to and broadens the messages and the views promoted by company spots. Features of the proposal encourage, motivate and help promote good faith compliance with its truth-in-advertising purpose by both advertisers and producers.

  1. Background, the Problem
    The Zapper's View
    The Corporate View
    A Nation of Buyers & Sellers
    You're OK, I'm OK – It's Not Just "Me, Me, Me"

  2. Anyone for "Voluntary Simplicity"?
    US Leads the World
    Ads are Precious
    Ad Industry View
    Sacred AND Profane

  3. Addiction?
    TV Trumps All

  4. Plugging Loopholes in THE PLAN
    Corporate Participation
    Fair to Ad & PR Agencies
    Fair to Corporations
    ualifying/Certifying Producers

  5. Advisory Board Oversight
    Certification & Authorization Board
    Enforcing Cooperation
    Fines and Judicial Review
    Free Speech Vs. Public Health and Safety

1. Background, the Problem

However useful it may have been to growth in the post World War II period, today in the rapidly-changing U.S. society, corporate advertising has become dysfunctional. By hyping material consumption advertising fuels economic growth. Wasteful consumption impedes progress to sustainability. A sustainable energy and resourse economy is now necessary to preserve options for future generations. Using resources lavishly or wastefully produces pollution. Pursuing economic growth at such high social costs precludes future generation's ability to produce enough for their own needs. We need to re-design the economy to continue to function with sustainable use of resources and sustainably limited production of toxic waste and pollution.

We are just learning about the fragility of certain aspects of life-supporting earth systems, such as global climate destabilization or regional ecosystem imbalances associated with the rapid growth of atmospheric CO2 or stratospheric ozone depletion or major interruption of the biosphere's normal recycling processes. Thus production processes are being redesigned and whole industrial sectors based on mass material consumption are shifting toward services and less material forms of consumption.

However, our GNP/GDP statistics still over-count material goods consumption and under-count this shift to "post-industrial" societies, based on services: education, entertainment, TV, computers, software, the caring sectors, which Hazel Henderson calls the Attention Economy in Building a Win-Win World, Chapter 5 (1996, 1997). As GDPs are re-calculated to include social and environmental costs, the unpaid, voluntary "caring sectors" and the rise of the Attention Economy, the hyping of more material consumption by the affluent will decline as a percent of real GNP/GDP. Meanwhile new measures of real wealth and progress, such as the Calvert-Henderson Quality of Life Indicators can steer toward a more sustainable future. (www.calvert-henderson.com)

The Zapper's View -- One of the things we learn growing up in the United States of America is not to notice TV commercials. Zap them. Miss one and another will come along soon enough. In a lifetime the typical person in the U.S. spends over 1000 hours watching TV commercials. We see no less than 300,000 of them. If lifetime exposure were cut to say 200,000 commercials, few believe that they would be handicapped, negatively affected, or deprived in any way.

Seldom do the ads tell us anything we haven't heard; most have little useful information content. We ignore the atrocious exaggerations and biases. When a commercial comes on, the sound is clearer, the picture brighter. One after another, they bubble with modern tempo, production values and pace. Creative advertising agencies shoot for funny, neat, cute, eye-catching, clever, or shocking; they banish dull, threatening, annoying. If we get carried away, ad-land can be a delightful, weird fantasy world. Advertisers spend big bucks on these spots and to viewers they don't matter. We float for a few seconds in ad-land, while content drifts to the periphery of consciousness. Can this affect our buying much?

The Corporate View -- Why do corporations pay $220 billion a year to get advertisements in front of us? The answer is simple. They work. Ad campaigns are tested for cost-effectiveness. Spending $8 billion a year on market research, the corporations find out what advertising dollars are doing for their bottom line. Apart from rare failures, corporations know that their major ad campaigns work. The research tells the corporations just what we, the consumers, want or are willing to put up with in their upcoming campaigns. As we tire of one approach, one style of commercial, we fall for another. We've been psyched out. The marketeers have our number. They're practically wired into our brains.

The $220 billion spent annually in the U.S. is money well-spent to increase profits. Many social scientists say that commercial TV is our country's most effective educational curriculum. Though each of us discounts what we see and hear in ads, a residue remains. Often, we do buy the advertised brand. When we're asked what we want, we may just say the name of the brand over the years subliminally placed to roll off the tongue. When we reach for something on a shelf, other things being equal, we go for the name brand. It pays to advertise. One negative is the vulnerability of children. Increasingly advertisers target children to shape their consumer habits early as described in Business Week, Dec. 30, 1996, p.43 and U.S. News and World Report, Sept. 11, 1996, "Does Kids' TV Need Fixing?

A Nation of Buyers & Sellers -- From all of the commercial pressure to buy, one residue lingers that was never really the intention of any advertising campaign. It is fully established and confirmed that the U.S. is now a nation of buyers. The U.S. culture is characterized --- more than any other that has ever existed --- as the society that is the most focused on buying and selling. Of all societies on the planet we spend the most time and energy at the market. We get psychic rewards of all kinds whenever we buy something, almost anything. We often equate ourselves with what we own. We are what we buy. Shop till we drop. Buying helps the economy. We have a patriotic duty to recycle dollars to build the GNP and prosperity. Consumer confidence is important and we add our little bit to it when we buy.

You're OK, I'm OK -- It's Not Just "Me, Me, Me" -- Does our devotion to buying mean that we are gluttonous, self-indulgent? Yes, some are, but some buying is for necessities. Most of us buy for our families. Everybody buys gifts and presents. We love to tell friends about great bargains. We like to see others buy. The abundance of goods, products, services, luxuries, and necessities, all are celebrated in U.S. culture, way beyond what any other society has ever achieved. This has some negative consequences that we usually don't consider when we buy. Our national savings rate hovers around zero – lower by far than other industrial countries – while our consumer debt is the highest. 

2. Anyone for "Voluntary Simplicity?"

Does our devotion to buying disgust the rest of the world? Those on the forefront of the voluntary simplicity movement may think so and some 28% of the U.S. population say they are "downsizing" their lifestyles, reducing consumption aiming at a higher overall quality of life. (See for example, opinion surveys by the Merck Foundation and the Harwood Group, Washington DC, 1995).

US Leads the World --The dominant view is, "Buying does not disgust the rest of the world. The way the economy is globalizing proves what the U.S. is doing is right." It is true that the world's cultures, traditionally much less materialistic than ours, are moving toward the U.S. model. In recent years, as free markets spread around the world, almost every society wants to own cars and refrigerators, to eat better, to consume more. This seems to strengthen arguments that the U.S. model of a consuming society is no problem at all. U.S. culture calls for the further onward and upward growth of consumerism, and advertising fosters consumerism. In the U.S. economy, over 65% driven by consumption, a sea of commercials is seen as a small price to pay for a strong economy. Before modern capitalism, no other system could boast that. The current strength of the U.S. is that we are the leading capitalist country in the world. Today the U.S. style of commercials are copied all over the world.

Ads are Precious -- U.S. TV on-air time is divided into little bits. Every few seconds is valuable -- a superbowl spot costs an astronomical sum -- $8,000 per second. More amazing, everybody defers to the supremacy of the commercial break. Big stars, politicians and pundits are cut off unceremoniously; top NFL and NBA teams take time-outs convenient for the networks; even the President of the United States must stop talking when it's time for the COMMERCIAL BREAK.

So-called non-commercial public TV too is disappearing. Corporate revenue now rules the Public Broadcasting System (PBS), while many in Congress say a public system is not needed --- commercial TV is all that is necessary in a free market. Children get a sub-text lesson from this repeating pattern. From earliest years they learn that commercials are the most important thing on TV. With little else in common, children and ad agencies know deeply that ads are precious.

Ad Industry View --The advertising industry tells us, "Without commercials, there are no sponsors, and without sponsors no TV". The industry itself in many countries sponsors "public service" ads glorifying "Advertising! Your right to choose". The industry asserts that audiences would have few programs to watch and little choice but small costly newspapers, if not for the benefits of advertising. Commercial broadcasters are pushing to privatize the airwaves. The media conveniently ignore mentioning that the airwaves still belong to the public.

Sacred AND Profane -- Announcers, voice-overs, talk show hosts never comment on the commercials. Does that mean that the viewers should not notice or comment either? There are two different viewpoints one can take on all of this. One is that commercials are immaterial, unimportant, beneath our notice. The other is that they are sacred, like rituals of a national state-religion.

3. Addiction?

Today in the U.S.A. watching TV programs is the number one activity of choice (averaging six hours per day) for children and adults. We fill more of our spare time with TV than any other single optional activity. Indeed, psychologists tell us TV is addictive. TV rules our lives more than any other activity. Commercials, whether sacred or profane, rule TV.

Children -- In the U.S. a debate is growing as to what kids learn or how they do at school compared to what influence TV has on their lives -- with its daily diet of killings, violence, mindlessness and pornography. Some of this debate is even shown on TV and the U.S. Congress has approved a "V-chip" for parents to screen out such TV from harming children. Many psychological studies show that violent programming does influence children's behavior negatively.

TV Trumps All -- Things seem not to be real unless they are on TV or relate to what is seen on TV. For some this is the clinching argument that TV has been absorbed deep in the psyche of children by the time they are teenagers. Anything that occurs that is covered as "news" comes to seem to be important because it is on TV. If it was not on TV, it did not happen.

Balancing -- $280 billion per year in the US alone, targeted year after year by the most sophisticated, successful advertising firms that money can buy, goes a long way toward capturing the hearts and minds of consumers, particularly vulnerable groups like children, elderly, the poor, the inexperienced and/or the narrowly educated. No demographic sector with significant buying power is overlooked by an industry complex of ad agencies, ad-revenue-dependent mainstream media (who get over half their revenue from paid advertising) and consumer-oriented public relations firms (who are geared to get free advertising in the guise of news, information, and entertainment). All of this is paid for by corporations selling consumer products and services.

HERE'S THE PLAN!  -- The core of the proposed TIAASA plan is that corporations with large ad budgets be required annually to set aside a small adjustable amount equal to the federal tax that would be due if a portion of the ad budget (capped and averaging less than 3% of the total ad budget) were taxable. The amount is not paid to the IRS but is placed in a corporate fund, that may be used by "certified, qualified, non-profit public interest TV/radio producers" (hereafter called "producers") for producing and airing supplemental counter-advertising that relates to and broadens the messages and the views promoted by the company's commercial spots. The fund must remain liquid, in near cash, and not otherwise invested. Any portion of the fund not so used by the non-profit producers over some period like five years (called the availability period) is released back to the company along with the interest it has generated over the years. The proper provisioning of the fund and disbursement of claims on the fund must be reviewed and approved by the corporation's auditors. If actual ad expenditure exceeds the year's budget plan, then the tax value of the difference must be added to the fund as soon as that information is made known in the annual audit. Any failing of the corporation to properly account for the fund must be revealed in the auditors' notes in the annual report.

4. Plugging Loopholes in THE PLAN

Included in the plan are all TV and radio ads, all broadcast and narrowcast ads, and the cost of all promotional events reaching or designed to reach a large number of persons, such as over 100,00, attending the event.

Corporate Participation -- Any company with ad budgets over a certain minimum amount M (suggested amount M = $20 million) must participate. Those with lower ad budgets may participate if they wish. A reason for some companies to volunteer their participation is given under Fairness to Ad & PR Agencies. If a participating company's total ad expenditures fall below M in a year, it need set aside nothing for that year. Funds and accumulated interest remains available for use by producers for the suggested five-year "availability period" (See HERE'S THE PLAN). Any unused portion reverts to the company at the close of the availability period.

All "overhead" items in the corporate profit and loss statement are positive feed-back loops that serve to enlarge the company's profits or otherwise benefit it financially. Along with legal and patent expenses, research and development, and other discretionary overhead expense items, advertising and other promotional expenses have been incurred to help the corporation survive and prosper. There is no inherent public interest reason why any of these overhead items can be expensed before taxes. We are talking about U.S. tax law quirks which corporations have lobbied into place over the years and now wish the public to treat as their divine and untouchable right. For small and mid-cap organizations, they have a case. (See, Harvard Business Review, "A Less Taxing Way to Pay Uncle Sam," by Alan F. Kay, March-April, 1980.) But as a public interest matter, now may be the time to cut a little of this "divine right" down to size by painlessly closing a little of the very large tax loophole of advertising and public relations expense -- as the TIAASA plan proposes.

Fair to Ad & PR Agencies -- Ad, media, and pr industries' revenues are almost unchanged by the TIAASA plan. In fact as the next paragraph explains, they may increase. Ads not placed by participating companies are replaced in general by ads of "qualified and certified producers" (See Qualifying/certifying producers.) Air time insertion fees remain the same for all broadcast media. If their creative and other services are worthy, many advertising and public relations agencies would be compensated by producers, who being non-profits, can support only very small staffs with the diverse skills needed by the ad and PR industries.

There is some evidence that advertising and public relations industries' earnings will rise with TIAASA in operation. The CEO's of many companies that have the best products or services and are the most socially and environmentally responsible believe that advertising is so degraded and misleading that it is a waste of money to join the large chorus of competitors saying, "We have the best products." Why should anyone believe them? Such CEO's would love to have a certified, authorized third party -- independent of the company -- make such statements, would be happy to pay these third parties out of their voluntary or compulsory funds and expect TIAASA will confirm the superiority of their products. As a CEO of AutEx Inc from 1965-1979, I, Alan F. Kay, was one who felt that way. In the interest of full disclosure, it must be mentioned that I have had no operating or financial relationship with AutEx for over 20 years.

Fair to Corporations -- The amount that a producer can claim for creation and airing of counter-spots cannot exceed what the company itself has spent to create and air the spots that the producer seeks to counter. If a company's TV themes and messages were generally fair, balanced, and truthful, at least more so than most others, particularly its competitors, then few producers would want to take on that company. They would want to take on the worst offenders. The majority of companies, those generally helping to lead the country to sustainability and cooperating with the TIAASA plan, after the few years of the availability period (defined in HERE'S THE PLAN), justifiably would have their TIAASA funds returned and be properly rewarded. Thus TIAASA would nudge companies with carrot, as well as by the occasional use of the stick, toward fair, balanced, accurate, advertising -- in the public interest.

The companies would remain motivated for their ads to be as effective as possible. Moreover, the very existence of the TIAASA Fund would have an effect that multiplies the effectiveness of whatever counter-commercials are produced and aired. TIAASA should improve honesty and quality, boost the sales of healthy, non-polluting products and human services, and reduce the number of annoying and misleading commercials and the amount of air-time they consume --- while redeploying U.S. Federal tax-expenditures to help achieve these goals and moving the economy toward sustainability.

If there never are claims against a company's fund, then the entire proposal takes on the character of a small reserve fund, a benign requirement for a large, well-run consumer company.

Qualifying/Certifying Producers -- There are enough creative, independent TV, film, and radio producers in the U.S. to accomplish all of the counter-ads that the corporate set-aside funds collectively might offer, but relatively few are, or would be interested in becoming, non-profits. On the other hand, many university communications and marketing departments, non-profit policy organizations and perhaps PBS itself, would be interested. 

5. Advisory Board Oversight

The TIAASA plan would have an Advisory Board of 10 to 15 Congressionally approved members composed of the Deans of University Communications and Journalism schools; representatives of prestigious public-interest groups, such as the Center For Media and Values, Los Angeles, the Center for the Study of Commercialism, Washington DC, as well as the New Roadmap Foundation of Seattle, publishers of best-seller, Your Money or Your Life; other groups advocating voluntary simplicity; major art institutes; and advertising and marketing trade associations, such as the Advertising Council, the Public Relations Society of America and others which have published codes of conduct in the public interest. The Advisory Board must approve the Certification and Authorization Board's operating procedures, ethical guidelines, and principles and methods for resolving disputes between corporations and producers.

Certification & Authorization Board -- The TIAASA plan would have a Certification and Authorization Board, whose members, numbering perhaps 7 to 15, would be recommended by one or more of the existing relevant Federal agencies, the Federal Communications Commission, the Food and Drug Administration, and the Federal Trade Commission. Members must be approved by Congress. The duty of this Board is to resolve disputes between corporations and producers.

The certification process would be designed to determine that each certified organization by the experience and commitment of their principals was ready, willing, qualified and authorized to produce TV/radio commercials in a competent, efficient, business-like, professional manner. To better assure that the airing of certified counter-commercials would serve the public interest, the producers' organizations should have no affiliation with any commercial media, advertising or public relations organization or any corporation required to participate in the TIAASA plan.

Enforcing Cooperation -- Corporations participating in the plan would be required to cooperate with whatever certified producer first approached them seeking funds for counter-ads in each year.  The corporation would be required to show the producer its current advertising plans in as much detail as the corporation was considering at the time and as much as the producer requested, including themes, messages, media plan, spot durations, expected airing schedules and geographic coverage.  The company would have to notify the producer immediately if its plan changed.  If another producer approaches the company later in the same year, the first producer has priority on the selection of the company's ads it seeks to counter based on the company's advertising plans.  All later producers would have choices restricted by the priority of earlier producer's choices.

Fines and Judicial Review -- There are myriad ways for a corporation to withhold cooperating with a producer. It is also possible for producers to withhold cooperation too. The corporation has to take full responsibility for its ads, the producer for its counter-ads. The producer does not have to reveal details of its counter-ads or show the counter-ads themselves before airing. If initially the corporations did not fully and truthfully reveal its ad plans, the producer could bring a complaint to the Certification and Authorization Board, which upon due process and followed by a hearing, as necessary, could assess a fine that the corporation would have to pay. A portion of the fine would be paid to the producer if the corporation's non-cooperation had led to the loss of opportunity and to expenses incurred by the producer in situations where the behavior of the corporation made it impossible or worthless to air the counter-ad. The remainder of the fine would be returned to the US Treasury. The total fine would come out of the corporations TIAASA fund. If it agreed to bring the case up to judicial review, the Board could recommend a fine larger than the corporation's available TIAASA fund, and if their position is upheld, a portion of the fine would have to be paid out of the corporation's general funds.

Free Speech vs. Public health and Safety -- The corporations may roll out the first amendment argument of "free speech" as soon as they are confronted with this proposal. One is reminded of U.S. Supreme Court Justice Louis Brandeis' argument that free speech does not allow people to yell "fire" in a crowded theater. The government has an overriding right to protect the health and safety of its citizens that can and should supersede the first amendment when there is a clear, present, and large danger. Some advertising, such as for tobacco, hard liquor, and other harmful drugs, is already banned from U.S. TV and radio. Why not the mild sanction that TIAASA would wield on misleading ads as well? Today the world is linked by communications and all our societies and communities are now crowded "theaters." The dangers of over-consumption are large, clear and present. Will the old mechanisms for growth that are now built into our economy produce a mad race into an unsustainable and disastrous future for our children? Or can we steer our material consumption into healthier, less wasteful and more equitable paths, as TIAASA will do?

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