NCPA - National Center for Policy Analysis

Mass Customization Is Improving Living Standards

May 19, 1999

Despite rapid growth in gross domestic product, productivity and employment, wages have been relatively flat. One explanation comes from the Federal Reserve Bank of Dallas.

In its annual report for 1998, the bank's economists show how mass customization is enormously improving living standards in ways that economic statistics do not capture. Yet people implicitly feel these improvements. Thus they may not feel compelled to push for higher wages because their living standards are rising without it.

The Dallas Fed economists make a persuasive case that mass customization is at the core of today's "new era" economy, just as mass production was at the heart of the Industrial Revolution. They point out that the wealthy have always been able to get what they wanted, made specifically to their order. The Industrial Revolution dramatically lowered the cost of many goods, especially clothing, enormously improving the well-being of ordinary people.

Yet while the Industrial Revolution did improve living standards, it did so at a price. That price was the loss of customization. Whereas once all suits had to be tailor-made, mass production demanded that everyone wear much the same thing.

Producers responded by increasing the variety of their goods.

  • We went from the Model-T Ford in the 1920s, with one style and color available, to the 1950s where every auto company offered several different lines in many colors, with a range of optional equipment.
  • By 1980, consumers had a choice of 172 different vehicles -- 135 cars and 37 other vehicles.
  • In the 1990s, however, computers have allowed almost infinite customization at no increase in cost.

The result has been both lower costs for producers, who no longer need to hold inventories or suffer losses on products for which there is no demand, and improved satisfaction for consumers.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, May 19, 1999.


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