 With unemployment at 15% and rising and the hashtag RIP Capitalism trending on Twitter, libertarian ideals of free minds and free markets need champions now more than ever. Adman Rory Sutherland may seem like an unlikely defender of capitalism, but he's one of its most persuasive and engaging. He's the vice chairman of the legendary global advertising agency Ogilvy, yet he calls the stentorian Austrian economist Ludwig von Mises his hero. Sutherland celebrates not capitalism's ruthless efficiency and capacity to outproduce a command economy, but its ability to create seemingly trivial products such as Red Bull and to transform the disgusting-sounding Patagonian toothfish into the delicious delicacy known as Chilean sea bass. Fittingly enough, Sutherland's latest book is called Alchemy. In it, he explains why the real genius of capitalism isn't maximizing output, but the ways in which creative destruction fulfills desires we never knew we had, allowing us to become whatever we want to be. He's a critic of economic thinking on the right and the left that reduces all human activity to mere utility and material considerations. I spoke with Sutherland, who is equally likely to quote Friedrich Hayek, Andy Warhol, or the left-wing social critic Pierre Bourdieu just a few weeks before the coronavirus pandemic hit. Ironically, the subsequent lockdown that has cratered the economy makes his views more relevant than ever. Thanks for talking to reason. That was a great pleasure to be here. All right, and you've got your vape rig ready. Absolutely. You know, let it go. We're very libertarian on that. In its purest distillation, Alchemy, the book, is a defense of what you call magic. What is magic to you about markets and capitalism? I think that attempts to look rational, which is, I think we ought to make that distinct from actually being rational or reasonable or intelligent, but attempts to make things resemble Newtonian physics when they don't, has led to a kind of destruction of both the appreciation of and creation of magic in human interactions and in markets. So where I would phrase it is that the equivalent of the second law of thermodynamics and economics is probably Milton Friedman's. There's no such thing as a free lunch. And the idea being that nothing can be created or destroyed. Now, that's broadly speaking true in physics. I'd argue that in psychology, and indeed most magic rests on psychology, particularly perception. In psychology, magic is perfectly possible. You can take exactly the same thing, rethink it, change the frame of reference, change the context, and you can make bad things good. One of the pieces of magic that is produced by capitalism that you talk about is red bull. Yeah. They're ubiquitous drink. Explain where it comes from and why that rather than the fact that we were able to outproduce the Soviet Union and the number of shoelaces, it's things like red bull is why the free enterprise system won the Cold War. When the taste was researched by a company which specializes only in the taste of carbonated drinks, they reported back that it was the worst drink they'd researched in the entire history of the company. Capitalism can actually produce successes which one no one would have predicted or designed in advance. I mean, this is why I think understanding as Hayek and Schumpeter would have done the extraordinary value of the entrepreneur in someone who essentially has some peculiar E-day feaks. Now, a lot of them fail. We ought to remember this, okay? But every now and then weirdly, you can succeed without knowing why. And without comfortably or easily being able to post-rationalize why, that's surely the really magical thing. No central planning committee, okay, would sit down in the Soviet Union and go, well, for the next five-year plan, the Politburo have deemed that it's absolutely essential that we produce a very, very highly priced, slightly revolting tasting drink in a tiny can. They never understand the fact that living in a street with graffiti on it might actually become something of a badge of honor rather than the source of disgrace. At one point in a TEDx talk at Brighton, you said we can make people wealthier by helping them choose more widely. What do you mean by that? Well, I think it's not a very difficult thought experiment to say that someone of immense material wealth living on a remote island where only seven things were for sale couldn't really deem himself to be that wealthier person, at least if he were confined to the island. And by the way, I think weirdly, this leads to one of the reasons why people, despite its many benefits, are bizarrely dissatisfied with capitalism. Because it now offers such a wide range of choice that a large number of our friends and acquaintances are spending money on things that we don't understand. And it's fairly easy when by and large everybody wanted steak and rich people ate steak frequently and poor people ate steak infrequently. There was a kind of, I think this is mentioned in the book Bowling Alone, or one of those similar books. There was a kind of homogeneity to taste. And therefore, generally, we excuse our own extravagances, but regard the extravagances of others as kind of horrific. A similar argument I make is that everybody hates marketing except when it's aimed at them. When it's aimed at them, they're willing participants in the illusion. So if the idea is that creating more choices creates more wealth, you have in other places, and you talk about him in the book, as well as in various talks, Ludwig von Mises, the Austrian-born economist, one of the great figures in the Austrian School of Economics. Why is Ludwig von Mises your hero? Partly, as I said, out of self-interest because he seems to be the only economist who understands the value of marketing and advertising. Peter Drucker says that there are only two things that really create value in a business, marketing and innovation. Everything else is a cost. Now, that's a very, very weird. If you said that to McKinsey, they'd regard that as pretty much heresy. His argument would be, I think, okay, that there are two ways of creating new value in the world. You either find out what people want and work out an ingenious way to make it, or you work out what you can make and work out an ingenious way to make people want it. And to an Austrian, there's no useful discrimination between those two. You mentioned Chile and Seabass as an example of this. What was Chile and Seabass called? Patagonian tooth fish. Yeah. Right. And so, you know, enterprising, I guess, you know, fishermen or marketers came up with the idea of taking the Patagonian tooth fish, which nobody would feed to their dog, just given the name and kind of the outside of the fish. They rename it the Chilean Seabass. And suddenly it's, you know, it's 25, 30 bucks a pound. How is that not a kind of a grift or a scam that is being run on the people who eat it? First of all, you could argue that what you were doing there is not so much creating a positive, by the way, Seabass arguably was a little bit. You're removing a massive negative. So, if you have a restaurant where the chef is basically cooking up Michelin quality food, but the restaurant has bits of mouse dropping on the floor and smells slightly of sewage, okay? No one's going to enjoy the meal however hard the chef works. And that's what you might call a manufacturing success, but a marketing failure. Now, if you have a pretty tasty fish, but you call it Patagonian tooth fish, okay? You've done the same thing. If, by the way, you design a very good product, but you name it incredibly badly, you price it incredibly badly, or your competitive set is very, very badly chosen, or people's expectation of it is mishandled. You've again done the same thing. You've achieved a kind of manufacturing success, but a marketing failure. By the way, this isn't all about advertising. It's also about expectation management. I would argue that low cost airlines, for example, Southwest, Southwestern or JetBlue or EasyJet in Europe, were very, very clever in that they were quite explicit about what you didn't get. And therefore, they told a plausible story, not entirely the true story, I might add, about why you were saving money. And so the idea was you didn't get a meal, you didn't get pre-allocated seating. In fact, Southwestern, I think you still don't do. I don't think so. You know, that you don't get any sort of free drinks. You have to pay for checked-in luggage. There are a whole bunch of other things. And that made people think, okay, I get it. So I'm saving money on a bunch of frippery. They were called no-frills airlines in many cases, which I don't want, which is how I can afford to get to Tallahassee for $69 instead of $250. To be honest, there were a lot of savings for a lot of other reasons, for example, pensions for the pilots and flight crew. But without that story, we wouldn't have had faith in those airlines. If they'd said, okay, okay, if they hadn't tried to manage expectations, said this is going to be a slightly more austere bus-like experience than you might be used to. And they'd said, you know, we're just as good as British Airways, but we're half the price. That would have been a similar case, I think, of a marketing failure. And that's because people would be like, well, they got the savings by now, checking the plane, the maintenance of the plane. The example I always give, okay, of where marketing and psychology and psychologic diverge from conventional logic will be a very, very simple example. It's akin to a kind of failure-esque thought experiment. If you have two products, one of them is better than the other, by which I mean it has more ostensible utility and features, okay? And you have another product with fewer features. It's somehow worse on most rational dimensions. And the ostensibly better product is also cheaper. To an economist, that would be the easiest decision in the world. In psychologic, not so fast. Because the human would be asking a whole bunch of second order questions, like if my product will really, if this product were really better, they'd charge more for it. There's something here that doesn't make sense. I don't feel quite comfortable with this. Therefore, I can't make sense of the choice and offer. So weirdly, instead of this being a very easy decision, I'm now confused and I'm probably not going to buy either of them. I had to bring up Nestle a little while ago, because they introduced two versions of the Virtuo coffee machine, the Virtuo and the Virtuo Plus, which had an automatic opening lid. And both of them were priced at the same, I think, was £189 or something. And I literally ran up and said, I really advise you don't do this. I mean, just add £5 to one, subtract £5 to the other. But consumers coming in and faced with the Virtuo or the Virtuo Plus and not being asked to pay some amount more for the Virtuo Plus will basically, instead of going, OK, well, I'm perfectly happy to buy either of them. Therefore, obviously, by the Virtuo Plus, instead, they'll be in a complete funk. They'll be unable to make sense of the wider social second order questions behind the price, and they'll end up walking away without buying either. So, at one point, you talk about the creation of the Sony Walkman, and that the engineers originally, when they were tasked by Sony to come up with this, they came back and they thought they had done a good thing by coming back with a machine that not only allowed people to play a cassette, or now we're going back to the 1980s, I guess, or late 70s, but you could actually record on it as well. And the reason was they'd based the kind of chassis of the thing on a thing called, I think, the Sony Talkman, which was a dictating device used by journalists. And for whatever reason, the addition of a microphone to the thing only added sort of cents or a dollar or so to the overall cost of manufacture. So they thought, why wouldn't you double the functionality for a trivial, rounding error increase in price? Now, of course, I have to be clear here, this is an assertion rather than the proof, because we don't know what would have happened otherwise. But it was a very interesting decision, which probably only the chairman of Sony could have taken to say, no, even if you have the recording functionality in the machine, I don't want you to add the functionality visibly. I don't want the thing to have a record button. And his argument, I suppose, might come down to the kind of Swiss Army knife issue, which is if you want to change people's behaviour, it's what Don Norman would call an affordance. The best doors aren't those where there's any ambiguity as to whether you should push or pull. They effectively, if those things have a kind of pad at arm height, it basically says, you push here, because that's all you can do. And therefore it removes any kind of ambiguity or confusion without even having to think you push. In the same way, arguably, if the machine had had two functions, it might have given people two reasons to reject it, which is, well, I don't really need the recording functionality. What is this for? Should I record concerts? Is it a dictation machine? Is it a business device? If all the thing did was you put in a pre-recorded cassette, or I guess a pirated cassette, but a pre-recorded cassette, and you listened to music while you were walking, flying, travelling. And that was the only thing you could do. You either tried that function and decided it was good or you rejected it. It's rather like what they teach you in negotiation skills, by the way, which is if you want to say no, give one reason. Because if you start adding additional reasons, people will start chipping away at the weakest one. You present yourself, generally speaking, in broad, lower case L terms as a libertarian. You like the idea of choice of individuals deciding what is valuable to them and being allowed to pursue that. And put it this way, I'm very wary of anybody, especially economists, and this is where I differ with half, half of what you might call the school of nudge. I'm very, very wary of other people deciding what's good for people, because unless you're inside someone's head, you don't know. Moreover, economists will tend to define what's good for people in very, very narrowly economic terms. I had a wonderful point where I went to a government discussion on how you encourage young people to get pensions. And I simply made the point that from an evolutionary psychology point of view, there may be perfectly good reasons why people in their 20s are not investing heavily in pensions, which is in what you might call in Darwinian terms, they have at that stage in their life other priorities. To put it bluntly, I don't think anybody pulled by going out for the evening and talking about their pension plan. And at that stage in your life, a Ford Mustang or a trip to Machu Picchu may improve your reproductive fitness considerably more than saving large amounts of money. And so one of the things I think that we've got to be very wary of is economists don't understand the wider context in which people operate. Is it fair to say, I mean, thinking of Hayek and of course, who's influenced by Mises on this, you know, Hayek talked about markets as a discovery process. And you talk about how, you know, we discover things that work, but we don't really know why, you know, and the medical parallel is that aspirin- I think with our psychology, you have to delve into sort of second and third order complex reactions to things, which are often highly visceral. The most interesting thing I think on this is that, which may be the entire defense to the whole Hayekian thing is that because it's not in our evolutionary interests to have accurate introspective knowledge of our own motivations. Once you accept that, which is Robert Triver's point in books like The Folly of Fools or, you know, once you accept that point, certainly there's Don Hoffman's point that there is nothing about evolution that predisposes humans to have accurate or objective, an accurate or objective perception of reality. In evolutionary terms, when you design a chair, nobody regards it as weird that we design it for the peculiar shape of the human frame. Otherwise, all chairs would be kind of cubes simply designed to carry the weight of the person sitting on them. No, chairs aren't like that, they're cushioned, they have curved backs because we've evolved backs that shape. Exactly the same applies if you're designing, for example, a loyalty program, a customer experience or a new product. You have to design it around what is essentially the evolved peculiar shape of human perception and emotional reaction, rather than designing it around objective qualities like SI units. A very simple example. Yep, it is probably a good idea to make queues shorter rather than longer. I'm not suggesting that that's a waste of time, but there are lots and lots of factors in about queuing, which... And by that you mean lining up. I'm terribly sorry. Yes, you're in America now. I have been told that Americans have used you simply because, of course, in printing you have the phrase a printer queue. That's right. And Americans sort of abducted it through there. So there are ways. But waiting in line, waiting in line can be less or more frustrating, irrespective of the duration, depending on about five or six other psychological factors. With apps like Uber or Lyft, seeing the car on the screen, which may have nothing to do with anything, that that makes it easier to wait. That's 90% of the value. Seriously, if you look at... OK, if you look at most... OK, so you... Dyson's worth a billion, OK? Nespresso's worth a billion, OK? I would say that most companies worth a billion quid, OK, or more, are as much the product of accidentally stumbling on a psychological discriminator, a magical source of psychological value. With Uber, there are several, by the way. There's also the fact that you just get straight out of the car without having to fart around with bits of paper. Oh, and that it increased the number of availability of rides, not a small thing. I think we'd still rather wait eight minutes for an Uber than wait six minutes for a cab without a map. And so my argument is, as with the placebo effect, why are we in denial about these things? Why, when anybody writes a Harvard Business Review about Uber, has it all got to be about economies of scale and the tedious kind of management consultancy blurb, rather than saying, this thing's kind of magic? Well, let's get to that question. And you've mentioned it a couple of times. Capitalism, as a system, has done a really great job. According to Brookings Institution and the UN, more than half of all people on the planet now live at middle class or above standards. Everybody agrees, Bono, from you two agrees, this is because of trade, it's because of commerce, it's because of capitalism. And inventiveness above all, actually. But that is set free or is allowed to flourish. And the combination of different inventions as well, we ought to say. There'd be no Tesla without the mobile phone battery and so on and so forth. So, but capitalism everywhere we look, whether it's in England or the U.S. or whatever, capitalism is in kind of a bad odor. We now have a surge of socialism. What is wrong with capitalism that it sells everything but itself? First of all, because I think that various people, including economists and management consultants, have taken a very Taylorist view of capitalism. Taylorist meaning a kind of strictly utilitarian... It's entirely around this idea of efficiency, that in other words, the magical element of it, which is to me the only thing on which you should lean to defend it. By the way, I don't think it is particularly efficient. Of necessity, the process of discovery, there's a trade-off between explore and exploit. And someone who's doing maximal exploit isn't doing enough explore. And by the way, I think a large amount of capitalism has developed in what I call... And the tech world is to some extent a willing participant in this, which is that you define something... I call this the doorman fallacy, which is you go to a hotel and a consultant might do this, a technologist might do this. You point out that there's a doorman there who's costing you $6,000 a year and you define his function as opening the door. You replace him with an automatic door opening mechanism. You declare yourself the wonderful savior of the hotel through having achieved labor cost savings of $30,000 a year with your marvelous automatic door. And then it's a little like a Chestertonian fence, actually, that you're getting rid of something without fully understanding. Now, of course, a doorman plays multiple roles as recognition for regular guests. There's liaison with taxis carrying luggage. Opening the door is actually, I mean, that merely is his job description. It's not really what he's there for. And he also provides a measure of security. And I think it's very, very easy to define things in a very kind of deterministic reductionist way to then use technology to replace the original function. And I realized that this attempt to make everything efficient is, in many cases, deeply inimical to the magic of capitalism, which is it makes things just as efficient as we want them to be and no more. If you look at poetry, poetry is inefficient prose. Music is inefficient poetry. OK, it's all more difficult. It's more effortful. But that's where meaning comes from. And to some extent, we derive meaning from the things that are discretionary, the things that are done that aren't strictly necessary. And so if you make everything very, very slick and efficient, you might create something which ultimately we don't like very much. What about young people these days who seem to be the ones who are most interested in socialism? Yeah, I mean, one thing that pisses me off a bit, which I will say as a devotee of capitalism, if you think about the typical person in Britain. OK, they get up and have a shit on their toilet, which is provided by private enterprise. OK, and they flush the toilet with water, which is provided by private enterprise. And then they clean their teeth with a private enterprise provided toothbrush and with some toothpaste, which is provided by private enterprise. And everything they do, pretty much, until they turn on the television to the BBC, is provided by some form of competitive capitalism. Right? Although Colgate actually is as close to a monopoly as... It might be like, I think it's other UN security camps. I think it's got the highest household penetration of any brand, interestingly. OK, why no one else can crack man, by the way. OK, but anyway, let's part that. And yet, if you ask those young people what they really love, they go the BBC and the NHS. Well, but let's... We can't really, from the way you were talking, from an Austrian school thing, we can't really say, well, they're wrong. No, no, no, no, you can't. No, no, no, no, no, no, no. But how do we reframe the discussion so they recognize the error of their personality? Well, no, there's an important thing there, which is, I think... I think it's also revealing, actually, of... If you think of something which is actually a bit socialist. OK, Netflix is in a weird way. Everybody pays the same, regardless of how much they use it, OK? Now, I could get really embittered about the fact that you're paying the same for your Netflix as I am, but you're watching much more of it, OK? Young people, logically, should dislike the NHS because it's a massive redistribution of wealth from the young to the old. Extraordinary high, if you think about it. I mean, if you only had to provide NHS treatment for people under the age of 55 or something, it would be, you know, a fairly, relatively trivial part of government expenditure, apart from childbirth, probably. But there's something people like about something, which is not... If you take Netflix, or you take, for example, something else which is bizarrely socialist, which would be a gentleman's club, OK, where everybody pays the same. I would argue that there is... And if you could understand this better, you could produce a better form of capitalism, by the way. There's something in us which quite likes cooperative ventures where not everything is a goddamn transaction, right? OK, if you map onto that idea of Jonathan Heights, that the human is kind of 80% chimp, 20% bee, I think you start to understand it. And I think there's... I mean, the interesting thing with Netflix, when you think about it, OK, is that you could produce a much more capitalistic Netflix, where you paid for each film in accordance with the production cost of each thing. And we like Netflix because it's kind of from each according to his abilities to each according to his needs. A gentleman's club, when you think about it, is an extraordinary thing because everybody pays the same. Some people use it very frequently. Some people use it only occasionally. There are people who get extraordinary value for money out of clubs and there are people who drop in on any occasion. But they are all excresences of capitalism, right? And so how do you... I mean, it's the question, how do you make people understand that Netflix is pay-one-price deal? Well, Amazon Prime will be another interesting case, OK. So there's something there where you could produce capitalism better if you understood what people want. Now, one of the interesting things, of course, is that I think people like relationships. OK, that's one thing that I think is... So economics tends to look at things as a one-shot optimization game. Now, I'll give you a very simple example. I always use the same taxi firm in my local town. I'm sure I could get better prices by phoning around. But I like to have, first of all, I like them to think of me as a reasonably important customer because at some point in the future, I'm going to ask them for a favour. OK? Well, at the same time, maybe they need to ask me for a favour. Let's say British Airways... They've never done this. I suggested they do it, but they've never done it. Let's say British Airways rang me up and said, Look, thing is, we're a bit overbooked on the... What was I on the 10-10 flight this morning, OK? We're a bit overbooked on the 10-10. You're totally free to travel on the 10-10, but it would help us out if you went on the 11-35, OK? Which would have meant I'd have to come straight here rather than going to my hotel first. And I went, yeah, OK, 11-35's kind of all right. OK, yeah, OK, that's cool, OK? And they offered me no incentive or inducement. I'm simply doing them a favour. Weirdly, I will like them more than I did before, provided there's a record of exchange. Now, this is a really important distinction, I think. I don't think economics distinguishes between anonymous exchanges, which is buying a newspaper in a New York shop, which is just a one-off, you're a stranger, versus repeat exchanges. And in repeat exchanges, weirdly, we seem to like a degree of give or take. And so an example would be, the taxi firm could ring me up now and say, would it be OK if we turned up a bit early tomorrow because there's someone needing to be picked up from Heathrow? And so it'd be really helpful if we could get to Heathrow by 8.30 rather than by 9. Weirdly, I'd be really overjoyed to help them out in that. Now, most companies don't understand this because I think economics hasn't taught them that, oddly, we like a form of barter, some form of kind of implicit barter, along with our helping of financial exchange. And maybe that's the bit that's B rather than chimp. I have no real idea about this. But I think you could design a form of capitalism which was... I mean, there's a very, very big difference between 10 people dealing with the same person once and one person dealing with 10 different people. That is the nature of transactional capitalism versus relational capitalism. Needs to be understood. Something we love about the NHS, I think, is that there isn't... Remember, there isn't with Netflix, OK? There isn't a direct relationship between consumption and purchase. Do you worry at all that capitalism, and this, I guess, is more Schumpeter than Hayek or Mises, that capitalism sows the seeds of its own demise by creating a kind of cultural superstructure that is incredibly hostile to capitalism? And so it says, you know, the Patagonian tooth fish is...that is the real thing. And like we...you know, we have people like you, the hidden persuaders, who fill us with a bunch of bullshit stories, advertising men, people who mystify what, you know, the actual power relations. Do you worry that capitalism gives rise to its own demise? I'm not sure that it's... I mean, you could argue that, of course, that competitive advertising seeks, in a sense, to foster a kind of dissatisfaction to what you have. Not necessarily true. And there are laws against that, right, in Europe. Disparaging of advertising tends to be banned in Europe. In the United States, you have a freedom of speech which guarantees it. Right. There is an interesting question, which is that the whole thing... I mean, there is, of course, a school of advertising which is there to... which is designed to make you the better appreciate what already exists. And, you know, there's been quite, quite interesting work in, you know, utilities, generally getting people to appreciate electricity. That was fantastic. I think Ogilvy in Belgium did something where they got everybody to spend a couple of days having to produce a meal for people with heavily rationed electricity. And it's only when you... you know, it's rather like Whopper when they took away the Whopper at Burger King. It's only when you take something away that you realise what we're missing. And so, you know, there is some interesting work around that which should foster greater appreciation of things. Friedman's argument was that by mostly removing poverty, gradually, it leaves what poverty remains an incredibly stark relief. I mean, one interesting thing I was going to mention is that what we have seen recently, which isn't generally spoken of as a good news story, but I think should be, is that there's an extraordinary range of very egalitarian products being produced. So, if you are... I mean, we can have a debate between the Xbox or the PS4 or, shortly to be, PS5, OK? But it doesn't matter whether you're a millionaire football player or a student. There is nothing you can buy that is better than that. There is no game better than Red or Dead Redemption. Now, if you think about how weird that is in the context of most of human history, where there is, you know, the iPhone... We can all have a debate about whether it's the iPhone or the Samsung Galaxy, whatever. But nonetheless, the fact that... I mean, OK, you might not be able to afford it brand new, but you can have today, if you're on median income, a phone which two years ago was the best phone in existence. Well, and as Andy Warhol once said, you know, what he loved about Coca-Cola was that... The bum on the corner of the president of the United States can't get a better Coke. All the Cokes are the same and all the Cokes are good. And consumer electronics is bizarrely egalitarian, and yet we don't fully appreciate how amazing it is. So, there is something here, which is that we become very, very... This is called the hedonic treadmill, I guess. We become very, very quickly meh about some of the extraordinary things that are produced. Well, we're going to leave it there. Although I look forward to your Peloton-style ads for the hedonic treadmill. That might be the next great thing. We've been talking with Roy Sutherland of Ogilvy, advertising in the UK, as well as the author most recently of Alchemy. Roy, thanks for talking. Thank you very much, Nick. It's been a pleasure.