Advertising: a force for good?

  • Advertising
  • January 29, 2013
  • Paul Head
Advertising: a force for good?

"Advertising is a poison that demeans even love—and we’re hooked on it." So wrote George Monbiot in The Guardian late last year. No doubt there are those among us who share this view. But I disagree, and not just because I’m paid to do so. 

The central premise of Monbiot’s article seems to be that advertising causes humans to focus on extrinsic values that lead us to consume needlessly in the pursuit of status. He’s not the first to make this point (formerly explored in Affluenza by Oliver James). 

I’m sure Monbiot’s argument holds true for some “consumers,” but what he fails to recognise is the contribution advertising makes to choice, competition, innovation and macroeconomic growth (i.e.jobs). In fact, taken to its logical extension, his argument seems to be advocating a return to some pre-industrial agrarian idyll—or worse, a grey, Soviet era dystopia with shops mostly empty and everyone driving a Trabant. 

Conversely, I believe that advertising drives positive economic growth. Whilst it could be argued that not all advertising is ‘good’, the overall contribution made by our industry to business and society is overwhelmingly positive.

CAANZ has been promoting this fact (to clients, and anyone else who will listen) for some time now. And it’s a great feeling to discover that McKinsey & Co agrees with me, as I learnt recently when reading its March 2012 report ‘Advertising as an economic-growth engine’, which examined the effect of advertising on economic growth in great detail. 

McKinsey is not the first to attempt to quantify the economic contribution our industry makes to society, but its findings are independent, credible and noteworthy.

It argues that increasing advertising spend results in GDP growth, not the other way around as commonly thought. 

"The results of our statistical-variance models showed that advertising has fuelled, on average, about 15 percent of growth in GDP for the major G20 economies over the past decade—and in some years, the contribution was as high as 20 percent." Thus Jacques Bughin, a director at McKinsey Brussels, concludes that “evidence points to an economically meaningful contribution from advertising to company performance as well as to the economy as a whole."

In the study, McKinsey also examined the macroeconomic impact that digital media had on whole economies, over and above the effect of traditional advertising channels. Since the turn of the millennium the digital world has exploded, and although it has replaced some forms of traditional media, half the money spent on digital media is now new money. Even so, over the past decade digital media represented nine percent of advertising spend but contributed 29 percent of advertising’s total effect on GDP growth. It is the additional revenue created through digital media that when reinvested into job creation (new products, services, innovations, etc) drives this additional increase in GDP. Consequently, the macroeconomic impact of digital media is found in its ability to enable the creation of additional jobs. 

In addition, the total contribution that advertising has had on GDP growth far surpasses its expenditure. 

"Total advertising represented two percent of total economic spend in the countries in our sample,” the report said. “Based on the confidence intervals used in our statistical analysis, the probability that advertising spend contributed to less than two percent of economic growth is very low—under ten percent. Put another way, advertising contributes significantly more to economic growth than its share of spending." 

McKinsey’s research should serve to reassure governments and corporations that they should not view advertising only as a business expense; it is also an investment that promotes macroeconomic and microeconomic growth. 

This is a very dry, economically rational argument. But it is also an important one. 

As an industry, we are constantly looking to prove the value of our work. We and our clients invest significant time and money in understanding and proving the effectiveness of what we do, from measuring sales success and brand health, through to the annual Effie awards. The evidence is incontrovertible that advertising and communications have the ability to add value to a company’s bottom line, drive social change and actually contribute to economic growth to the benefit of society as a whole. 

Those of us who work in the industry have always believed this, but it’s great to have an organisation as globally respected as McKinsey support our beliefs with a very rational and data-driven argument.

  • Paul Head is the chief executive of CAANZ.
  • This article appeared in the Jan/Feb edition of NZ Marketing magazine. 

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