Pyramid schemes are as American as it gets

Have you ever been invited by a friend or a family member to a coffee shop or a lunch date, and when you get there you realize that they don’t just want to catch up?

Instead, it turns out they’ve got a great business opportunity for you. All you have to do is spend a little money on the front end, maybe buy a package of protein supplements or meal replacement smoothies, and pretty soon you’ll be your own boss and living the dream.

If that sounds familiar, it’s because this is an enormously popular business model, called multilevel marketing (MLM), in which sellers make money either by selling products or recruiting others to sell those products. Millions of people in America participate in MLMs, and while the people at the top make billions and wield a lot of power, roughly 99 percent of the people who join up don’t make — and often lose — money. For that reason, MLMs have — rightly — been controversial and a target of regulators. Critics see them as little more than legal pyramid schemes.

One of those critics is Jane Marie, the host of a podcast series called The Dream and the author of a new book, Selling the Dream, both of which investigate the intersection of MLMs and pyramid schemes and the broader “wellness” industry. I wanted to know a little more about the history of these businesses and why they persist despite their track record, so I invited Marie on The Gray Area to talk about it.

Below is an excerpt of our conversation, edited for length and clarity. As always, there’s much more in the full podcast, so listen to and follow The Gray Area on Apple Podcasts, Spotify, Stitcher, or wherever you find podcasts. New episodes drop every Monday.

Sean Illing

What’s the simplest definition of multilevel marketing?

Jane Marie

Basically, if you picture a triangle, there’s people that own it at the very top. Then they recruit, say, five people, and the way the scheme goes is those five people are supposed to recruit five more, and then those five are supposed to recruit five more, and the idea is that it keeps expanding exponentially.

And the way multilevel marketing companies differentiate themselves from straight-up pyramid schemes is that there’s some sort of product or service involved. It gets sold to people being recruited into it. Almost all of them have a sign-up fee. They usually have a kit or a collection of products that you have to purchase right away when you join. And that money is what flows up the pyramid. The people at the very bottom often quit pretty quickly because they’re not making any money, and then they’re replaced by more eager, hopeful folks who buy what the company is selling, which is false hope.

Sean Illing

Is there actually a meaningful distinction between a pyramid scheme and an MLM?

Jane Marie

I don’t think so, but the legal difference, which is debatable, is that there’s a valid product or service involved in an MLM. But when you dig a little deeper, the products are typically overpriced. They’re not something unique. They’re things you can find in the regular marketplace for a lot cheaper, or the service is offering something that’s cheaper and works better.

Sean Illing

Do we have any idea how many active MLMs there are now and how many billions the industry brings in every year?

Jane Marie

One in 13 adults in America have participated in an MLM, which is a lot. And they’ve expanded into developing countries. So there’s a huge MLM presence now in Southeast Asia and in Mexico and South America. It’s just a guess, but I’d say the industry is probably worth $40 billion or $50 billion.

Sean Illing

MLMs disproportionately target women and they seem to thrive in rural areas and on military bases where spouses are often alone with the kids. In many ways, that’s not all that surprising, but how do you explain it?

Jane Marie

Well, they’re feeding on the idea that we’re all raised on in America, which is that if you work hard, try hard, you’ll get rewarded. The world is your oyster — that whole thing. But it just isn’t true. The promise is still very attractive, though. The appeal of the American dream, it doesn’t ever really go away. And the architects of these schemes understand that that’s all you really need to appeal to.

This is what they sell. Do you remember how when you were growing up, you were told that you should be able to achieve anything you want? We’re going to be the only company that gives you that opportunity. And even better, they don’t ask if you have a high school diploma. They don’t care if you’re a felon. You can do anything and be anything. And they’re specifically going after groups that need that opportunity or that feel they need that opportunity and aren’t given that opportunity by the mainstream marketplace.

Sean Illing

The thing that really drove me to your book is how you draw a straight line between what we think of as the “wellness industry,” which includes the vapid world of online “life coaches,” and MLMs. Can you tell me about the connections here? Why is the story of MLMs also the story about the rise of wellness hucksters and life coaches?

Jane Marie

It’s kind of an endless chicken and egg thing, but I’ll tell you the elements that I see.

One thing is that MLMs, wellness, and life coaching all preach this idea that they — the big “they” — don’t want you to know that there is in fact a cheat code to life. They don’t want you to know that you don’t have to go to therapy. You just need a life coach. They don’t want you to know that you don’t have to do chemotherapy, you just need to buy this vitamin or this oil. They don’t want you to know that you don’t have to go to college, you can just sell Tupperware.

So it’s the same mindset with all this. There’s an “us versus them” mentality and it feeds on the idea that there’s a shortcut and a cheat code to financial prosperity, to achieving the American Dream.

Sean Illing

I’ve spent an embarrassing amount of time on Instagram surveying the whole life coaching space and the amount of bullshit on offer is just incredible. I realize not all life coaching is like this, but there’s a guy I used to know a long time ago and I discovered recently that this is what he does. And he’s not just a “life coach,” he’s the coach of aspiring life coaches. He was always charismatic and now he’s shifted into some kind of New Age douchebag Socrates, and it appears to be working very well for him.

But it looks like a straight-up pyramid scheme to me, a lot like the classic MLMs, because it relies on this fantasy that there’s an infinite supply of clients out there for these potential life coaches. And maybe there is, in theory at least, but the reality is that almost every one of these people are going to spend thousands of dollars taking this stupid guy’s stupid course and they’re not going to make any of it back!

Jane Marie

Unless they develop their own course, which is also what he’s teaching them. He’s showing them the way to make money selling the course!

Sean Illing

Right, that’s the pyramid! But the music is going to stop and the people at the bottom of the pyramid won’t have chairs to sit in.

Jane Marie

That’s absolutely right. But the people who traffic in these schemes think that’s fairness. They believe that not everyone’s going to have a chair to sit in and that makes sense to them. Not everyone gets to be a billionaire. Only the smartest, most hardworking people are billionaires, which we all know isn’t true. But that is a mindset.

Sean Illing

The other side of the wellness industry is also bullshit but it’s a little different. It’s the world of essential oils and supplements and tinctures and alternative therapies and that kind of stuff. Is someone like Gwyneth Paltrow patient zero for this particular disease, at least the modern version of it?

Jane Marie

In the modern era, yeah. I would say she is the poster woman for the wellness industry, and even she’s gotten in trouble for peddling garbage. She had that whole jade egg thing that you were supposed to put in your vagina.

Sean Illing

Why doesn’t the FDA regulate any of this stuff in the wellness supplement space? Could they do it even if they wanted to?

Jane Marie

They put boundaries around it a few times. We’ve created laws over the last hundred years or so around what constitutes food and drug. This distinction is important. What’s a food and what’s a drug? Well, a drug is something that is proven to treat, cure, or alleviate an ailment, and that has to be proven a certain way according to their guidelines.

And then foods are things that keep you alive. So that leaves a lot of stuff out there that people can just make up and say, This’ll help with this or that. It’s not a drug and it’s not a food, but you probably want to drink it. Because it’s going to make you feel better, or in some way help.

They do get in trouble every once in a while when people get sick. There’s been plenty of them that have been found to have high levels of lead or other poisonous metals, and then they get closed down after that. But the FDA doesn’t really have the bandwidth to check out every single bottle of vitamins.

The trickiest thing about the vitamin stuff is you don’t know actually what’s in them. So if I’m going to buy vitamin C, vitamin C does nothing. I mean, you need it, but you don’t need thousands of milligrams a day and it’s not going to get rid of your cold. And so if that was what’s in the bottle, it’s fine to take it. It’s not going to kill you.

But there is no agency that tests every different factory’s vitamin C or says, this is how much vitamin C is actually in that pill. And there have been plenty of cases of someone finally testing some bottle of vitamins from the grocery store and finding out, actually, there’s no vitamin C in here. It’s sugar or whatever. It’s like something else entirely.

To hear the rest of the conversation, click here, and be sure to follow The Gray Area on Apple Podcasts, Google Podcasts, Spotify, Pandora, or wherever you listen to podcasts.

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