The Pseudo-Economics of Multilevel Marketing
“Imagine financial freedom. Whatever that looks like to you, it is here. You’re fully able to access that and tap into that.”
–Pruvit Consultant, video
“In six months I was able to leave teaching…I’m working less hours, making more money, and helping people. Why not?”
–Primamerica Consultant, video
“Be a Full-Time Mom. Have a Part-Time Business. With Full-Time Pay. Ask Me How!”
–Paparazzi Consultant, Facebook post
“#FireYourBoss Like I did!”
–Pure Romance Consultant, Instagram post
This is just a sampling of the countless “business opportunity” pitches that are everywhere on social media these days. Although the “opportunities” involve a variety of products — everything from cosmetics, wellness, and home care products to fitness programs, life insurance, and cryptocurrencies – the pitches have common themes: freedom, security, work-life balance, empowerment, support, family, community. Interestingly, the appeals are not strictly economic or material and seem more…spiritual. An almost ubiquitous selling point is the chance to be part of something “bigger” – a mission, a movement. Again and again, in one form or another, there is the collectivistic proviso: “you succeed only by helping others succeed.” And the ultimate promise of this “work”? An escape from work.
The Business is multilevel marketing or MLM. MLM has its roots in the United States, but many US companies and the MLM business model have gone global. As MLM has moved its “direct selling” activities from door-knocking and house parties onto social media, there is growing public awareness of this unconventional business model and, among the more skeptical, a sense that something is not quite right: MLM seems a bit “cult-y,” kind of like a “pyramid scheme,” a sure way to lose money. In recent years, MLM has become the subject of documentary exposes and of parody on late-night TV.
Skeptics are right to be concerned. If the defining feature of a pyramid scheme is that investor-participants earn money primarily by recruiting new investor-participants rather than by selling products, many, if not all, MLMs seem to fit the bill. 99 percent of MLM participants actually lose rather than make money, according to a report published on the website of the US Federal Trade Commission (the main consumer protection agency of the US). When the dream turns into a nightmare, many are driven into debt or bankruptcy, divorce, family estrangement – even suicide.
And yet, MLM recruitment is growing – in North America, in Europe, but especially in the poorest countries in the world. In the US, participation in direct selling grew by 20 percent in 2020, according to industry data. Even as COVID spread, sales volume increased in Europe, as it had each of the previous four years. A majority of MLM firms that responded to a recent industry survey attributed their 2020 revenue growth to the pandemic, which left millions jobless and/or looking for opportunities to work from home. More than 6.6 million people are engaged in direct selling in the European Union, nearly 16 million in the wider European region. In Slovakia, there are over 220,000 “direct sellers.” The majority of direct sellers are women; immigrants are disproportionately represented among them.
Commercial cults
Why do people join? Why do they stay? If business is about numbers and if numbers don’t lie, what explains such belief in the face of such loss? To answer these questions, we must take seriously the non-economic, non-material aspects of this business, which operates not according to standard principles of economics – supply and demand, profit and loss, voluntary contract – but according to pseudo-economics, which is ultimately based on faith. We must analyze the cultic relationships – between the “uplines” and “downlines” – that make up the pyramid.
According to clinical psychologist and cult researcher, Margaret Thaler Singer, cultic relationships are characterized by “coercive persuasion,” an extraordinary form of influence different from everyday persuasion by friends, family, and other influences in our lives, including media and advertising (2003). It starts with a practically irresistible pitch, one that taps into our deepest longings and insecurities, and offers a plan for salvation. Cults gradually destabilize recruits’ sense of self, get them to reinterpret their life’s history and adopt a new worldview, along with a new version of reality and causality. Developing a dependence on the organization, recruits thereby become “deployable agents” of the organization. After decades of studying various cults and working with current and former members, Singer concludes that cults basically have only two purposes: recruiting new members and fundraising. The plan for salvation is a scam.
All cults come with a set of beliefs – but the content is incidental, adapted to the times, responding to changing wants and needs. Whatever the content, the belief system is always fundamentally delusional, characterized by Orwellian “doublethink,” in which mutually contradictory beliefs are accepted as true. Whatever rewards are promised, the real plan is to exploit members in the service of growing and enriching the organization. Understood this way, in terms of structure and practices, cults can be found in endless guises – religious, mystical, political, psychotherapeutic, even commercial. The better the disguise, the better the grift.
Liberation from work or a new kind of bondage?
Many MLMs are billion-euro companies, some traded on the world’s biggest stock exchanges, some privately-owned; some are decades old, some fairly new. MLM is endorsed by celebrities, elite football players and clubs, clergy, and international dignitaries, including former US secretaries of state, even several presidents. Former US President Donald Trump is perhaps MLM’s highest paid sponsor, promoting it for more than ten years leading up to his presidential candidacy in 2015. The Amway Corporation is the world’s largest MLM company, Herbalife is possibly the most notorious, but there are thousands all over the world. Despite investigations and fines by regulators in the US and multiple other countries, both of these US-based enterprises continue to expand globally, and they field hundreds of distributors in Slovakia.
MLMs are highly profitable – but only for their owners and for the top echelon of their membership. The typical MLM distributor earns nothing, especially after taking expenses and costs into account. Yet MLM “business opportunity” pitches refer constantly to “life-changing income,” “unlimited income” and feature hashtags such as #FinancialFreedom, #ResidualIncome, #PassiveIncome, #6FigureIncome, #MillionaireMindset, and #DebtFree. The US-based independent, advertising watchdog organization, Truth in Advertising (TINA.org) investigated every MLM that was a member of the Direct Selling Association (DSA), an MLM trade group, in 2017 and looked at how each advertised its “business opportunity.” TINA.org found that 137 out of 140 MLMs – more than 97 percent – made false income claims. Altogether, they counted over 3,000 deceptive claims, concluding that deceptive marketing is a systemic problem within the industry.
Another ever-present feature of MLM recruitment pitches are exhortations to “quit your job,” “retire,” and “fire your boss.” When asked, most people say they joined an MLM not to make millions, but to earn enough to be able to leave their jobs and have more time for what truly matters – to achieve “time freedom,” in the current lingo. Recounting his decade of experience as a former high-level Amway distributor, Eric Scheibeler notes how Amway “income opportunity” presentations routinely equated having a job to “slavery” (2009). Employers were villainized as “oppressive,” despotically controlling our time and money. Scheibeler recalls the words of an Amway “millionaire mentor”:
…many people’s lack of success is due to our engaging in production work of one sort or another.Specifically, most of us toiled our entire lives, exchanging time for dollars. It would not matter if we were bricklayers or neurosurgeons, as both merely traded hours for dollars. No matter how long we did this, we would always be busy…most people were working harder and longer for less and less. (ibid.)
Such “anti-job” rhetoric is pervasive in MLM testimonials and pitches, where jobs are characterized as debasing, soul-destroying, and fundamentally exploitative. Taking us away from our homes for eight and often many more hours a day, jobs are further maligned as destructively “anti-family.”
It is not hard to understand why these criticisms of work under capitalism resonate with many. That such seemingly anti-capitalist rhetoric is deployed on behalf of hard-nosed, profit-driven companies is perhaps more difficult to grasp. Enter doublethink. The chief means of imposing doublethink is through control of language: redefining familiar terms and concepts and using them in ambiguous ways, inculcating new vocabulary and rules of usage, and closely policing communication. By MLM logic, multilevel marketing represents “the purest form of capitalism and free enterprise on the planet”: in The Business, pay is based strictly on performance and “independent business owners” are in control of their work, time, and income (Scheibeler, 2009).
MLM offers the opportunity to “be your own boss” and to “own a business” with relatively low start-up costs compared with traditional business investments. This helps explain why MLM is particularly appealing to immigrants and low-income people worldwide who see entrepreneurship as a way to improve their lives. “Work-from-home” opportunities, MLMs are touted as means of spending more time on cherished family life. Along these lines, many pitches employ “mom-shaming,” suggesting that mothers employed outside the home are neglecting their motherly duties. Lured by the prospect of becoming “momtrepreneurs” or by the ideal of women entrepreneurship more generally, women make up the vast majority (77 percent) of “direct sellers” in the EU, and in Slovakia (78 percent).
In the end, “independent business ownership” in an MLM typically ends up being far more oppressive than a standard job. First and foremost is the requirement for total social and psychological conformity. Working as part of an MLM means one is no longer considered an “employee,” resulting in a loss of labor rights and any guarantee of a minimum wage. Precious few “bosses” end up earning the equivalent of a legal minimum wage for hours worked. By contracting with MLM companies as “independent distributors,” participants also relinquish standard consumer rights, such as easy return of products and freedom to resell products as they wish or to criticize. On the surface, consumer protection might seem irrelevant for “direct selling” enterprises, but like much in this business, things are not what they seem.
The myth of “direct selling”
In Orwell’s fictional Oceania of 1984, “War is Peace. Freedom is Slavery. Ignorance is Strength.” In The Business, Buying is Selling. According to one of the world’s leading experts on MLM, Robert L. FitzPatrick, multilevel marketing actually has little or nothing to do with “direct selling.” FitzPatrick explains:
MLM is disguised to look like direct selling, with the use of products and words and names taken from the real business of direct selling, such as “commissions, bonuses, retail, and distributor.” This is only disguise. “Direct sellers” in MLM have few or no customers. “Downlines” are just other “direct sellers.” MLM participants don’t “sell.” They buy and recruit others to do the same.
The fiction that MLM is direct selling is perpetuated by global public relations campaigns headed up by a powerful, international “direct selling” lobby. Originally, direct selling referred to independent contractors in “single level” companies who made retail profit strictly by selling products to consumers. Think of the classic door-to-door salesman selling encyclopedias or knives. In multilevel firms, by contrast, independent contractors can benefit from personal sales and from commissions based on the wholesale purchases made by those whom they recruit. Multilevel marketing is usually left out of standard economics textbooks and gets little attention in business schools, economics departments, and academic journals. Under these circumstances, industry lobby groups have had considerable power to shape the identity of MLM as “direct selling.”
In the US, Slovakia, and Europe as a whole, MLMs are represented by lobby groups under the “direct selling” moniker – the Direct Selling Association (DSA), Združenie priameho predaja (Direct Sales Association – ZPP), and the European Direct Selling Association (Seldia), respectively, each of which are part of the Washington DC-based World Federation of Direct Selling Associations. The corporate memberships of each of these groups are predominantly multilevel rather than single-level. According to the most recent statistics available from the DSA, over 94 percent of its members were using MLM, accounting for 99.6 percent of sellers and 97.1 percent of sales. In Slovakia, all seven of the companies listed as members on the ZPP website are MLMs: US-based Amway, Mary Kay, Herbalife, NuSkin and PartyLite; Sweden-based Oriflame; and Switzerland-based Just.
According to FitzPatrick and other industry critics, although MLM distributors can theoretically earn money by selling products in the retail market, hardly any do. Similar products can be found in retail stores, usually, for much lower prices. Nearly all product purchases by MLM participants are driven by MLM rules, which require a certain volume of purchases every month in order to become or remain qualified for any rewards tied to recruiting – and without recruiting, sustainable income is impossible. Constantly accumulating products, few of which can be effectively sold on a retail basis, many participants are forced to rent storage space to house all the unsold stock. What results is basically an “internal money transfer,” which moves funds from newer recruits to older participants, activities disconnected from a true marketplace – in essence, a pyramid scheme.
To stop believing
Rather than sell products in a retail marketplace, MLM participants are incentivized by MLM rules and trained by their “upline,” to sell the “business opportunity” and build a downline. Having bought into the opportunity themselves and coercively persuaded to believe in the opportunity, MLM participants – at least for a time – view recruitment as supporting and empowering others. In the context of MLM, the maxim that “you succeed only by helping others succeed” is really just a cynical ploy to motivate the exploitation of others. Herein lies the ultimate cruelty of pyramid frauds, the most tragic consequence of MLM brainwashing: victims become victimizers.
Subjected to highly coercive social and psychological persuasion, trained to follow expertly choreographed scripts, and to speak a language of toxic positivity, MLM participants lose access to their own critical thinking, which has been redefined as “negative thinking.” MLM participants often become estranged from friends and family, having either exploited them as buyers and sellers or rejected them as doubters. They become dependent on their uplines and responsible for their downlines, which inevitably include people – often friends and family – who are struggling to make their “businesses” work. Following the “program,” upline participants repeat the usual MLM slogans to their downlines: “The system works 100 percent if you work the system 100 percent.” “Only quitters lose and only losers quit.” Many stay involved out of guilt and a sense of obligation to their downlines. The thought that they dragged others into a swindle is too much to bear. The possibility that they have worked so hard and lost so much – financially and personally – for nothing, is unthinkable. They borrow more money. They put in even more time. They continue to believe.
Some maintain the delusional belief system longer than others, but every year 50 – 90 percent of recruits quit. Without new replacements, MLMs would collapse. So, they keep expanding to new areas, selling their fraudulent business opportunities to vulnerable people. The sell is made easier because most former participants don’t speak out about their experience. They realize they were deceived, but also that they deceived others. Many stay quiet out of shame.
Despite these obstacles, more and more former MLM distributors are going public with their stories. There is a growing “anti-MLM” movement. In it, many are finding the genuine “community” they were seeking all along.
Scheibeler, Eric N. 2009. Merchants of Deception: An Insider’s Chilling Look at the Worldwide, Multi Billion Dollar Conspiracy of Lies that is Amway and its Motivational Organizations. Charleston: BookSurge.
Singer, Margaret Thaler. 2003. Cults in Our Midst: The Continuing Fight Against the Hidden Menace. New York: John Wiley and Sons.
Nicole Hala is a sociologist and currently teaches at C. S. Lewis Bilingual High School in Bratislava