Thursday, October 9, 2014

The Light Bulb Cartel and Planned Obsolescence

The old 1951 movie "The Man in the White Suit," starring Alec Guinness, is both an entertaining adventure/comedy and a meditation on technology and planned obsolescence. The Alec Guinness character invents a wonderful new fabric that will never get dirty and never wear out. He sees a future where ordinary people will save money on clothes and cleaning expenses. People marvel at the invention at first, but soon everyone is against him: the textile and clothing companies fear his cloth will put them out of business, the workers in those companies fear losing their jobs, and those who do the washing fear losing work, too. Near the end of the movie, one character notes wryly that markets won't function if the products work too well. He says: “What do you think happened to all the other things? The razor blade that doesn’t get blunt? The car that runs on water with a pinch of something else?”

It's harder to come up with clear-cut real-world example of where companies sought to reduce the quality of a product in order to boost sales. After all, in real-world markets there should usually be a mixture of lower-quality, lower-price products and higher-quality, higher-price products, and what people want to buy will have a substantial effect on what gets produced. But in the October 2014 issue of IEEE Spectrum, Markus Krajewski tells the story of "The Great Lightbulb Conspiracy: The Phoebus cartel engineered a shorter-lived lightbulb and gave birth to planned obsolescence."

The lightbulb conspiracy refers to the Convention for the Development and Progress of the International Incandescent Electric Lamp. It was signed in 1924 by the world's major light bulb manufacturers, including Germany’s Osram, the Netherlands’ Philips, France’s Compagnie des Lampes, Hungary’s Tungsram, the United Kingdom’s Associated Electrical Industries, and Japan’s Tokyo Electric. As Krajewski explains: "The U.S. company GE, one of the prime movers behind the group’s formation, was itself not a member. Instead it was represented by its British subsidiary, International General Electric, and by the Overseas Group, which consisted of its subsidiaries in Brazil, China, and Mexico. Over the next decade or so, GE would acquire significant stakes in all the member companies that it did not already own. ... [T]he group founded the Phoebus cartel, a supervisory body that would carve up the worldwide incandescent lightbulb market, with each national and regional zone assigned its own manufacturers and production quotas. It was the first cartel in history to enjoy a truly global reach."

Of course, cartels were widespread in the early decades of the 20th century, as the legal concept of antitrust enforcement was just getting established (which is surely why GE kept its American-based fingerprints off the Phoebus cartel). But even today, international antitrust is just now becoming a hot topic.

What makes the Phoebus cartel especially interesting is not its its standard cartel behavior in seeking to fix prices and quantities for sale, to assure higher prices. It's the effort of the cartel to shape the technological development of the light bulb, and in particular, to make light bulbs that would reliably burn out after about 1,000 hours--thus assuring additional future sales. Krajewski writes:

How exactly did the cartel pull off this engineering feat? It wasn’t just a matter of making an inferior or sloppy product; anybody could have done that. But to create one that reliably failed after an agreed-upon 1,000 hours took some doing over a number of years. The household lightbulb in 1924 was already technologically sophisticated: The light yield was considerable; the burning time was easily 2,500 hours or more. By striving for something less, the cartel would systematically reverse decades of progress. ...
[W]e found meticulous correspondence between the cartel’s factories and laboratories, which were researching how to modify the filament and other measures to shorten the life span of their bulbs. The cartel took its business of shortening the lifetime of bulbs every bit as seriously as earlier researchers had approached their job of lengthening it. Each factory bound by the cartel agreement—and there were hundreds, including GE’s numerous licensees throughout the world—had to regularly send samples of its bulbs to a central testing laboratory in Switzerland. There, the bulbs were thoroughly vetted against cartel standards. If any factory submitted bulbs lasting longer or shorter than the regulated life span for its type, the factory was obliged to pay a fine.
Much of the research on shortening the expectancy of light bulbs focused on the materials and shapes used for the filament. One project at GE, for example, set out to reduce the life expectancy of flashlight bulbs, so that the bulb would need to be changed roughly each time the batteries were changed. At one point, some cartel member tried to sneak in some longer-lasting bulbs that would also require higher voltage. But the cartel snapped back.
After the Phoebus development department’s customary report of voltage statistics revealed such product “enhancements,” Anton Philips, head of Philips, complained to an executive at International General Electric: “This, you will agree with me, is a very dangerous practice and is having a most detrimental influence on the total turnover of the Phoebus Parties…. After the very strenuous efforts we made to emerge from a period of long life lamps, it is of the greatest importance that we do not sink back into the same mire by paying no attention to voltages and supplying lamps that will have a very prolonged life.”
As Krajewski points out, the common excuse from the light-bulb makers was that the shorter life expectancy was necessary for a higher quality or volume of light. But they didn't actually seek to research light bulbs with long life expectancy and better light--only light bulbs with shorter life expectancy. The efforts to reduce the life expectancy of light bulbs succeeded: "Over the course of nearly a decade, the cartel succeeded in this quest. The average life of a standard reference lightbulb produced in dozens of Phoebus members’ factories dropped by a third between 1926 and fiscal year 1933–34, from 1,800 hours to just 1,205 hours." 

The light bulb cartel was staggered by the Great Depression and crashed for good during World War II. Of course, we now live in a world where the incandescent light bulb is being phased out, in favor of compact fluorescent and LED light bulbs, which often promise much longer life. But it's intriguing to wonder about what capabilities incandescent bulbs might have developed if the early research and development focus been on longer life, not brighter lights and planned obsolescence. And it's interesting to consider about the merits of the current legally enforced technological tradeoff for light bulbs: that is, high up-front prices and low electricity consumption, but with a fair amount of consumer grumbling about the quality of light and whether the new bulbs are really going to last for as long as promised.