Who are the exploiters?
They are individuals who gain the advantage of the efforts that other individuals put in the provision of information, services and resources. In economics, bondholders and bankers exemplify exploiters who accumulate their wealth from the efforts and resources provided by employees and investors (Giraldeau, Heeb and Kosfeld). Exploiters occupy the uppermost part of the wealth pyramid while those assisting them to accumulate their wealth occupy the bottom of the pyramid, a position characterized by a constant flow of monetary resources. In the case of multi-level marketing, the owners of the marketing companies captivate and exploit underprivileged communities. The typical empty promise that multi-level marketing companies make while searching distributors is that those joining them will receive a home-based income.
Is it a financial fraud or simply unethical?
According to Koehn, multi-level marketing is an outstanding direct selling approach for any company, but the illegality and unethical nature arise from exploited clientele relationships, pyramiding scams and aggressive selling strategies (158). All these form the basis for global negative perception about multi-level marketing.However, with the full knowledge on the exploitative nature of multi-level marketing, a significant portion of the US considers the practice as legal. The question on the legitimacy of the multi-level marketing (MLM) companies depends on two factors namely the country of operation and the nature of the business. As Muncy attests, the legality MLM practice is dependent on the type of business that a company does (115). Referral marketing and network marketing are legal practices attached to multi-level marketing. According to the U.S. Federal Trade Commission (FTC), multi-level marketing becomes a financial fraud when it operates as pyramid selling which entails recruiting other people for money. Multi-level marketing acting in any other form which makes a company or individual earn without selling products become a pyramid scheme, an illegal practice according to United States Code (Federal Trade Commission). The thin line existing between marketing scams and multi-level marketing raises questions on company ethics. For instance, the recruitment of multi-level marketing representatives is the role of external independent contractors thus despite the companies becoming operations being legal and ethical, the recruiters themselves may take part in illegal and unethical practices that are contrary to the companys standards.
Why do so many people join these businesses?
Many people join multi-level marketing business because of MLM companies promise of a substantial opportunity to generate lucrative income considering that it is a non-boundary activity. The key driver to joining multi-level marketing business is the creation of cash flow from the exploitation of billions of people poor people at the bottom of the wealth pyramid who aspire to realize their ambitions and dreams through multi-level marketing. As MLM companies market themselves as the providers of home-based income, many people see them as opportunities for reclaiming themselves from abject poverty. According to Koehn, the primary motivation for peoples engagement in multi-level marketing affiliate businesses such as pyramid selling, network and referral marketing is the amount of money they can obtain (154).
Why arent multi-level marketing companies who exploit their distributors shut down by the FTC? What is being done to stop this issue?
FTC will only shut down non-product business activities such as pyramid schemes which are deceptive and unfair (Federal Trade Commission). However, there is no clear documentation of the exploitation of distributors in product-based multi-level marketing activities in FTCs MLM policy. The lack of clear-cut difference between legitimate multi-level marketing activities and pyramid schemes impedes FTC from taking stern actions such as shutting down their businesses. FTC has the mandate of protecting consumers and distributors against exploitation, deception and fraud. Such a measure is possible through policy guidance, the provision of forums, workshops and education to consumers and business education to distributors, taking law enforcement actions to perpetrators. FTC should also review the compensation structures attached to MLM companies to fortify their operations and enforce the implementation of incentives created in the compensation structure to avoid exploitation.
Federal Trade Commission. Business Guidance Concerning Multi-Level Marketing. 2017. Web. 27 January 2018. <https://www.ftc.gov/tips-advice/business-center/guidance/business-guidance-concerning-multi-level-marketing>.
Giraldeau, Luc-Alain, Philipp Heeb and Michael Kosfeld. Investors and Exploiters in Ecology and Economics. Massachusetts.: MIT Press, 2012. Web.
Koehn, Daryl. "Ethical Issues Connected with Multi-level Marketing Schemes." Journal of Business Ethics 29(1):153-160 (2010): 32(2):153-160. Print.
Muncy, James. "Ethical Issues in Multi-level Marketing: Is it a Legitimate Business or Just another Pyramid Scheme." Journal of Business Ethics (2004): 4(5): 112-119. Print.
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