Scams All the Way Down

Photograph by Nathaniel St. Clair

As the coronavirus pandemic swept America in 2020, a few industries managed not only to weather the economic shock but actually prosper. Food-delivery apps, exercise bikes, and streaming services all profited handsomely, mostly because people were confined to their homes. Somehow, multilevel marketing companies did well too.

The Direct Selling Association, the national group representing companies that market products straight to consumers through independent sellers, reported a record-breaking $40.1 billion in sales in 2020. Except, as Bridget Read unravels in her new book Little Bosses Everywhere, that number is highly deceiving.

In the world of multilevel marketing (MLM) the only “sales” that are recorded are the purchases made by each seller, euphemistically described in the industry as consultants, distributors, or managers but never as employees. So even when products end up in someone’s basement or trashcan, that counts as a sale.

Read argues that what really happened in 2020 was not a growth in demand for vitamin shakes, makeup sets, or knives — it was a surge in desperate Americans tricked into thinking MLM was their golden ticket out of living paycheck to paycheck. The pyramid scam is bigger than ever before, and its influence has crept into nearly every part of the American economy.

MLM owes its start to Carl Rehnborg, an entrepreneur who tried introducing milk to the famously lactose-intolerant Chinese market. After his failed Asian business venture, Rehnborg became fixated on developing vitamins from alfalfa in Southern California. Like most vitamins, his product had minimal health benefits and his business, eventually called Nutrilite, struggled until his luck turned in 1945. That was the year he met William Casselberry and Lee Mytinger, developers of the “Plan.”

The pitch was simple: every Nutrilite distributor could make money in one of two ways. They could buy pills at a discounted price and then profit by selling them for a markup. Or distributors could become “sponsors” who made money by bringing in new distributors below them. All distributors in a “downline” would buy their products from the original distributor, who would also get a commission when their recruits made purchases. This method was far, far more lucrative for distributors at the top.

Door-to-door selling companies like Avon and Fuller Brush existed at the time, but the Plan was radically different because it didn’t require Nutrilite representatives to actually sell products. Multilevel marketing (MLM) was born and three middle-aged flameouts got very rich.

Nutrilite spawned dozens of companies whose founders realized they could never get as rich as those at the top of the pyramid unless they formed their own. Each came with its own money-making twist on the model.

Abundavita made the “positive thinking” pop-psychology mainstreamed by Dale Carnegie and Norman Vincent Peale a central ethos of MLM; Nutri-bio let distributors buy-in to higher ranks without recruiting anyone; Mary Kay Cosmetics proved the scheme was viable outside of pill sales.

Glenn Turner’s foray into cosmetics with Koscot Interplanetary introduced maybe the biggest innovation yet: making “self-improvement the product” by requiring distributors to buy self-help courses from the company. The “tools” model was taken to the next level by heads of downlines at Amway — the industry giant started by two top Nutrilite sellers in Jay Van Andel and Richard Devos — who got fabulously wealthy by cajoling recruits into buying books, listening to tapes, and attending trainings to become better sellers.

Companies running the MLM scam have come and gone (Amway, whose founders funneled much of their profits into the New Right, is one notable exception), but the industry as a whole is bigger than ever. An estimated 17 million Americans have tried MLMs, with the vast majority having made no money at all, and that’s before considering the millions more sucked into schemes abroad. And the underlying scaminess has spread.

In a particularly telling encounter, Read meets a 70-year-old Black woman named Gladys while traveling to the Mary Kay museum in Dallas. Gladys shares that she tried selling Mary Kay products several times but was never able to make the extra money she needed, and still has makeup she couldn’t sell 30 years later. Now, unable to fully retire, Gladys drives for the Lyft.

The parallels between MLM and the gig economy are unavoidable: people are lured into both with the promise of being their own bosses only to have very little autonomy and be saddled with the independent contractor status that robs them of basic worker protections. Both promise riches in exchange for hard work while in reality the only people getting wealthy are the ones at the top of the pyramid.

The gig economy also borrowed from MLM’s playbook for beating back regulation. Read recounts several instances when the Federal Trade Commission had opportunities to reel in MLM or punish particularly bad actors, but each time the industry successfully watered down proposed regulations, shifted to accommodate new rules, and started testing the limits of others.

Read’s dissection of the MLM industry and the fables behind its luminary figures is essential reading for anyone trying to understand how the scam — from the gig economy to cryptocurrency to investment coaching circuits — has become a central fixture of our society.

Little Bosses Everywhere is out now from Crown Publishing.

This first appeared on Inequality.org.

The post Scams All the Way Down appeared first on CounterPunch.org.

This content originally appeared on CounterPunch.org and was authored by Chris Mills Rodrigo.

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