The Right Stuff: America's Move to Mass Customization

Policy Reports | Economy

No. 225
Tuesday, June 01, 1999
by W. Michael Cox & Richard Alm

Right Stuff, Wrong Statistics

As mass customization becomes part of our everyday lives, most Americans will intuitively understand how it represents an improvement over mass production. Clothes will fit better. Entertainment will be more enjoyable. Doctors and hospitals will have individualized tools to make us healthier.

"It is difficult to measure the benefits of mass customization with the rudimentary economic yardsticks now available."

Yet it may be hard for many Americans to assess how much better off we are. The problem lies in how we measure our economic progress. We tend to rely on a handful of well-publicized statistics - most notably, gross domestic product, the Consumer Price Index and productivity figures. The benefits of mass customization, however, are hard to quantify, especially with the rudimentary economic yardsticks now available.

A Statistic Designed for Mass Production. GDP is a simple counting - the number of units made. It falls short in measuring intangible benefits. Economic research demonstrates that GDP often fails to capture consumers' gains from better quality and new products. Mass customization introduces a similar bias, one tied to the fact that we can measure production but not consumers' satisfaction. They aren't the same, even though many commentators casually link them.

Nobody ever said quantity was the spice of life. GDP statistics tell the same tale whether a business executive owns 12 identical suits or if he possesses a dozen in an array of fabrics and styles. Is it really the same? No individual would think so; that's why our closets are filled with a variety of garments. Will 100 copies of Catcher in the Rye offer as much reading pleasure as one copy of 100 different novels? GDP says so. Most consumers would say no. And just as variety has produced gains for America that have eluded the GDP and productivity statistics, mass customization will produce even more.

Preventive production proves just as slippery for GDP accounting. [See the sidebar "An Ounce of Prevention.] If electronic sensors in roads and vehicles can prevent accidents, Americans will have undamaged cars. Without the technology, they might be involved in more collisions, spending money on repairs. Either way, they have the same thing- a car without dents. The first costs less, so GDP accounting would suggest we're worse off, not better off. Similarly, scientists are developing vaccines that will eliminate tooth decay. We will benefit from improved dental health, but the holes not drilled in teeth are net losses to GDP. A stitch in time may indeed save nine, but it also generates one-ninth the GDP.

"Gross domestic product is increasingly inadequate as a measure of how well the economy is doing."

Inflation-adjusted GDP puts economic growth at an annual average of 2.7 percent over the past two decades. GDP may be entirely accurate as a tally of how much our farms, factories and offices produce, but it's increasingly inadequate as a measure of how well the economy provides what we want - the satisfaction produced. As we grow wealthier, Americans are taking more of our progress in ways that aren't readily quantified. We're refining what we produce - making the right stuff, not just stuff.

Productivity Overlooked? If GDP can't detect the benefits of mass customization, it will also miss the mark on productivity, a number that derives straight from the GDP calculations. Some economists are disappointed in America's productivity performance over the past quarter century, a time of rapid spread of new technologies - most notably the computer. They see measured productivity slowing to 1 percent a year and worry that Information Age advances aren't delivering the same economic punch as Industrial Age inventions. It just isn't so. Our statistics don't recognize how the economy is making us better off by producing for us individually rather than en masse. [See the sidebar "The Paradox That Isn't."]

Our statistics are a rearview mirror, looking back at the past. We need to focus on the economy that's emerging rather than the one that has been. Tomorrow's progress can't be judged with yesterday's gauges. What's needed are analytical tools that can capture the benefits of mass customization and preventive products.

After all, output and productivity aren't the goals of the economy. Consumer satisfaction is.

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