16 December 2014

Why have capitalists become so bad at mending dishwashers?


I ran into Dominic Lawson last week and all we could talk about was the piece he wrote recently for the Daily Mail on his broken dishwasher. You can read it – All I want for Christmas… is a dishwasher that works – here. I congratulated him because he had captured perfectly the modern frustration of dealing with many large corporations when an electrical appliance has gone on the blink, blown-up or ground to a halt.

Dominic’s faithful Bosch dishwasher came to the end of its life and was replaced with a whizz-bang, state of the art new model by AEG, which soon ceased to work. In seeking to have it repaired or replaced he then – in a tale that will be familiar to many consumers – entered a hellish bureaucratic maze from which it has taken him and his wife months to emerge. They now seem to be on the way to having the dishwasher fixed, hopefully.

We have had a similar problem at home recently. I won’t go into too many details. You’re busy and life is short. Needless to say, we are feeling pretty lukewarm about our new Hotpoint dishwasher. It throws up an error code (10) and doesn’t finish cleaning the dishes properly, leaving a thin film of filth along parts of the bottom of the machine. We have put it on the cleaning cycle endlessly with various over-priced solutions.

The man who came to fix it could not. Now that these machines are computerised, he explained, they are pretty much unfixable. Oh, and you should clean it, he said. We do, we said. He left and since then the problems have continued for weeks despite even more cleaning.

The firm which we pay money to each month to insure and service (if necessary) our household appliances says that in this case the responsibility for repair in the first year rests with Hotpoint, even though we are paying a monthly fee for the dishwasher to the other vast conglomerate. Ah, you are paying this direct debit for next year’s cover, he said. When my wife queried the sense of us paying a year in advance she was talked to extremely rudely.

Of course, dealing with the fallout when a dishwasher or washing machine goes wrong takes up many hours of time. Numerous phone calls must be made. I am at home today writing and can hear my wife – who is also trying to get on with work – having to make one call after another just to try and get someone to come and fix a machine that has not performed the basic task it was built to undertake for several months. A nice person in Hotpoint customer service has now said that someone will be here on Friday. How pathetically grateful we are to the nice person when we finally get through to them and they say they will try to lead us out of the consumer maze.

I accept that these are what are termed “first world problems”. But we live in the first world and have paid for a dishwasher that should work. And it does worry me – as someone who is very much pro-market – if the existing mega-corporate suppliers do a poor job of serving their customers. The worry is that if capitalism too often fails these small tests (washing dishes and responding politely to complaints) then voters who are not necessarily interested in the theoretical arguments for economic liberty will be more inclined to believe those who say big government has a simple answer. Capitalists need to be honest about this stuff and interested in making improvements or get ready to lose.

It used to be said of life in Britain before Margaret Thatcher came to office that you had to wait for six months for the government to install a telephone (some Labour voters contest this, saying it was only two months or a matter of weeks). But if it now takes three months and a large phone bill to get a dishwasher fixed have we come as far in the last thirty years as we are often told?

The anti-capitalist explanation for this failure is simple. Fat cat dishwasher bosses have ruthlessly driven down costs, laid off skilled workers, put some cheap flashing lights on the dishwasher control panel to make it look cutting edge, charged more for inferior machines, sold their souls to private equity barons, stashed their ill-gotten loot in Luxembourg and hired domestic staff to clean their own dishes while the rest of are forced to stand, shouting and swearing, in front our blinking dishwashers.

I have not read the comedian Russell Brand’s latest treatise on the wickedness of capitalism, but if it contains anything at all about dishwashers it will undoubtedly be in that vein.

But back on planet earth, the story of dishwasher failure is much more interesting and complicated than that. It centres instead on regulation, excessive industrial consolidation and eco-activism.

Dominic Lawson’s piece hinted at the astonishing amount of consolidation (mergers and acquisitions) there has been in the field of electrical goods, which is news to most people other than specialist journalists working on trade magazines or M&A bankers, lawyers and accountants who have done the deals. He writes:

“It turns out that AEG and Zanussi are, in fact, part of the same business. And that business is not German. Yes, the emails my wife received from AEG Customer Service were always attached to the reassuring — though increasingly provocative — slogan ‘Perfekt in Form und Funktion’. But, as I discovered, the AEG brand had not only been snapped up by the Swedish firm Electrolux back in 1994, its new owners had some years ago closed down all the German factories which used to make the machines. Indeed, it seems probable that our AEG machine emerged from the same Italian plant that churns out Zanussis — including the one which lasted for one wash in our household.”

Incidentally, in September this year Electrolux also bought General Electric’s household appliances division for $3.3bn, which adds Hotpoint to its pile of brands.

What we are left with then is a market that in some areas is much less competitive than all that shiny advertising and alluring branding suggests. Worse, in some respects it is quasi-monopolistic. The main producers are massive.

Something similar happened in banking in the two decades before the crash. As they consolidated and became bigger, banks became so unwieldy that they were difficult for any individual to manage safely. In Europe this was done partly in anticipation of the emergence of a cross-border banking sector that it was presumed would be dominated by several giants. But as they grew, the banks too often became distant from the needs of their customers and in Britain even started to invent and sell them products that they did not need, such as Payment Protection Insurance (PPI). There are echoes of this in the business of pushing service contracts to those who buy household appliances.

Simultaenously, in Europe there has been a push to harmonise rules and regulations relating to the manufacture of electrical goods. This makes sense when one considers the impact of the single market that operates in the EU. However, it is not difficult to see how this has acted as a spur to consolidation. It is an opportunity tailor-made for a team from a leading management consultancy to draw up a plan for company X that shows that in one EU-wide market if it buys company Y in Germany it can cease making its machines there and switch everything to one cheaper facility in Italy but still charge the consumer Z for a machine that is no longer really German, although the advertising slogan remains Germanic. Do this for twenty years and some of the firms involved become so large that they are, as I said earlier, distant from their customers, with inevitable results.

As ever, the proliferation of regulation suits big companies, or at least disadvantages them less than smaller rivals. The giants can always just hire a few more lawyers and lobbyists to interact with government and officials, whereas smaller firms and new arrivals find the regulatory burden more difficult to deal with.

Regulators have also been keen to enforce new environmental rules that make it harder for household appliances to do the job effectively. In the United States this resulted in Energy Conservation Standards for Dishwasher 77 FR 31918 which stipulated that from May 2013 a machine can only use five gallons of water per cycle, when older machines (remember the ones that worked and lasted for many years) used more.

In Europe, the European Union is also very keen on regulating every aspect of household appliances under the banner of saving the planet. This is popular with some of the existing producers, who argue that the push towards “power saving” will encourage innovation. In September, Reuters reported that Reinhard Zinkann, the CEO of Germany’s Miele and chair of an EU home appliance industry body, had tackled David Cameron’s opposition to more rules about manufacturing. Zinkann wrote: “Contrary to the views presented in some media, our industry sees the… ecodesign and energy labelling directives as having a positive, not a negative, impact on our business environment.”

Not everyone at the EU Commission agrees, and officials are mindful of recent promises to cut red tape.Yesterday discussions were taking place in Brussels on slowing the drive for ever more energy-saving regulations on the production of kettles (which used to last for twenty years and now seem to last about twenty months) and hairdryers. Even so, it is already too late to stop a blizzard of new regulations that will be introduced from January 1st 2015 on cooker hobs, ovens and fans, leading one to suspect that if the EU was as good at job creation as it is at creating new regulations then the continent might not be in the mess it is today.

There is no single piece of legislation that can sort out the mess, or fix our malfunctioning dishwashers, or turn the tide on the excesses of consolidation. The answer, certainly, is not more regulation and government micro-management. Only if greater competition is encouraged, and regulation that advantages existing producers is reduced, only that way will more new producers and innovators get the room to bring fresh products and improvements to market.

Thankfully, there are some manufacturers who have taken an insurgent anti-Establishment approach. This is precisely what James Dyson did when he set out to reinvent the vacuum cleaner, and thank goodness he did. The established firms declined his revolutionary designs so he set up his own company making vacuum cleaners that work and he is now worth £3bn. Now, could the next James Dyson please put his or her mind to making a reliable dishwasher?

Iain Martin is the Editor of CapX.