Multi-Level Marketing: A Neoliberal Institution

Abstract

Capitalism has a productivity fetish. The goal of squeezing more and more out of workers while also cutting costs to the quick underscores all historical incarnations of the capitalist cycle of accumulation. The fixation on productivity spills over and infects the adjacent cultural institutions, and individuals are socialized to believe that working hard—a virtue in its own rite—is also a means to achieving economic security and the respective cultural signifiers therein. Under neoliberalism, this productivity fetish spawned the “side-hustle” and the explosive growth of the multi-level marketing (MLM) industry.

The MLM is a logical outgrowth of the capitalist accumulation imperative as well as a neoliberal institution which relies on business and social practices distinct to this current historical period. MLMs are able to push typical retail overhead costs on to individual distributors, who are expected to act as buyers, inventory holders, retailers, self-managers, recruiters, job trainers, and exert disciplinary control over their distributor lines. All of the individual distributor’s relationships transform into potential transactional exchanges, thereby amplifying the alienation already endemic to capitalism. This research examines the MLM as an interactively reinforcing institution of neoliberalism, the ideological operant of this current phase of capitalism.

Keywords:

• direct selling
• network marketing
• multi-level marketing
• neoliberalism
• institutions

JEL Classification Codes:

• B52
• Z12
• N00

Capitalism has a productivity fetish. The goal of squeezing more and more out of workers while also cutting costs to the quick underscores all historical incarnations of the capitalist cycle of accumulation. The fixation on productivity spills over and infects the adjacent cultural institutions, and individuals are socialized to believe that working hard—a virtue in its own rite—is also a means to achieving economic security and the respective cultural signifiers therein. Under neoliberalism, this productivity fetish spawned the “side-hustle” and the explosive growth of the multi-level marketing industry.

Multi-level marketing (MLM) organizations operate as retailers selling products and/or services with an advertised unique selling point that is not available for purchase in stores or online.¹ In order to purchase the products or services, customers must order through an individual distributor who receives a commission on those sales. If an individual distributor is able to recruit other people to sell for the MLM, one could also move up the ranks in the organization and earn further commission from what their recruits sell.

More than the products or services per se, MLMs sell a chance for the individual to become an “entrepreneur.^” Since the MLM is, in effect, (ostensibly) selling an opportunity—a potential avenue for achieving the American dream—the package presented is an emotional and ideological one. The MLM wraps the path to success which it offers for sale in an all-encompassing belief system predicated on the vague notion of the “good life “(Herbig and Yelkurm 1997). Instead of direct disciplinary control, the core MLM organization imbues its membership with a sense of a higher purpose—a moral calling to spread the gospel of the product/service, and even more importantly, the “opportunity “of joining the MLM (Sparks and Schenk 2001).

The MLM is a logical outgrowth of the capitalist accumulation imperative as well as a neoliberal institution which relies on business and social practices distinct to this current historical period. MLMs are able to push typical retail overhead costs on to individual distributors, who are expected to act as buyers, inventory holders, retailers, self-managers, recruiters, and job trainers, and exert disciplinary control over their distributor lines. All of the individual distributor’s relationships transform into potential transactional exchanges, thereby amplifying the alienation already endemic to capitalism. This research examines the MLM as an interactively reinforcing institution of neoliberalism, the ideological operant of this current phase of capitalism. The first section describes the basic organization structure of MLMs along with some of the core terminology that is necessary to understand how MLMs function and how their individual distributors work. The section which follows examines the legal distinctions between Ponzi and pyramid schemes and MLMs, as well as the legal gray area of the regulatory environment in which most MLMs operate. The third section explores how MLMs and neoliberalism interact as reinforcing institutions through neoliberal cost-shifting and worker management, the neoliberal transformation of relationships between the individual distributor, family/friends, strangers, and themself, and finally, examines the individual distributor as a neoliberal individual. The final section concludes.

Structure

MLMs are complex organizations which often use bespoke terminology to refer to processes, positions, and goals within their operations. This tailored jargon is important in veiling the difficulty a distributor will have in achieving milestones, but more importantly, in maintaining one’s place within the hierarchy. The remuneration and prize schemes are deliberately byzantine and difficult to navigate. Nevertheless, MLMs share some basic jargon which is critical to establish before any investigation can proceed.

Individual distributors are not considered employees, but legally as independent contractors² (Gross 2010; Lan 2002). The individual distributor works on a commission-only basis and receives no regular salary or standard benefits. The commission comes from a combination of three sources:

1. “direct commissions” from selling the MLM’s product to an end-user at whatever price the individual distributor can get after having purchased that inventory at a wholesale-like discount

2. selling the MLM’s product to other distributors in their “downline”

3. commission earned off the sales of distributors who have been recruited into the company by the individual distributor

The latter two of these are considered “override commissions” and are commissions received off the sales made by individual distributors to their respective “downline”—people the individual distributor has recruited into the MLM (Bloch 1996; Gross and Vriens 2019; Keep and Vander Nat 2014). The recruiter—and everyone above them in the hierarchy—is called the “upline.”

Recruitment, sometimes referred to as “duplication “or “replication “(Bloch 1996), is the primary yet unstated goal of MLMs. Once a part of the organization, the importance of recruitment for new recruits is emphasized as a way to earn even more “passive income” from their potential new downlines. The MLM system is designed to make individual distributors into pseudo-capitalists—the drive for recruitment is premised on the upline’s ability to earn money off their downline’s efforts. The shared goals and team ethos of the MLM organization are immediately undermined by the exploitation of one’s downline. The commission that uplines make off their downlines is made palatable by the MLM with the emphasis on the upline having offered “the opportunity” to the downline, thus the commission is “earned “through the sharing of the MLM experience with the downlines. The uplines are thus rewarded for their virtuosity rather than guilted for their exploitation (Gross 2010). Charging new recruits with the task of further recruitment is thus also framed as an act of munificence. It is notable that within the individual distributor network, a higher position in the hierarchy (i.e., fewer uplines above, greater downlines below) does not correlate with greater authority within the organization (Herbig and Yelkurm 1997). The individual distributor who sits high in the hierarchy might have some level of informal expertise status and the core MLM might trot out the highly placed individual distributor in its ceremonies and marketing as it curates success stories, but that individual does not have a fundamental say in the organizational practices or remit of the core MLM.

The main categories of products that MLMs sell are beauty, health/wellness, clothing and accessories, and household items, but MLMs also sell intangibles such as loans, phone contracts, energy supply, and travel services (Gross and Vriens 2019; Keep and Vander Nat 2014). Some distributors are first recruited with the lure of buying products at a discounted (purportedly wholesale) price. Others are recruited for the potential opportunity of “owning their own business,” working flexible and self-determined hours, or earning passive income. Regardless of the initial motivation, individual distributors buy the product or service from their upline for either personal or business use (the legal complications of this will be discussed in the following section). The purchases for business use might be used for a variety of purposes: for readily available inventory, for sample distribution, to fill/refill a selling kit, or to try a new product in the line. Legal problems arise when a distributor makes purchases based on purchase targets which offer rewards or ascendance in rank to the individual distributor once met, rather than to meet expected end-user demand; a practice called “inventory loading” (Keep and Vander Nat 2014). Ascendance in rank often unlocks a higher percentage received in commissions and the rewards might be as flashy as a new car. The key to understanding the inventory loading issue within any MLM is that any ascendance in rank or any large reward will be taken away if the individual distributor does not maintain that achieved target on a monthly basis. If, in any given month, an individual distributor falls short of their monthly sales target, they will lose their rank or they will have to pay for their reward: when distributors “earn” a car, the MLM leases the car on the distributor’s behalf and as soon as a monthly target is missed, the distributor must begin paying on that lease. The issue of inventory loading and what constitutes personal or business use has been the subject of legal battles between the Federal Trade Commission (FTC) and several MLMs since the 1970s.

Legal

The legal framework surrounding MLMs in the United States is complicated. Adding to the juridical tangle is the popular discussion around MLMs generally, and the resemblance of the MLM to Ponzi and pyramid schemes as frequently pointed out in the anti-MLM community. It is therefore important to spend some time differentiating between these similar yet legally distinct selling structures.

In the Interwar Period in the United States, Charles Ponzi attempted to make his fortune through the arbitrage of buying international reply coupons,³ exchanging those coupons for higher value foreign postage stamps, and then selling those stamps. While the earning made from the arbitrage were legitimate and potentially large after WWI, the net returns were meager due to the large transaction costs required in the exchanges, and Ponzi soon turned to a more lucrative venture: getting other people to invest in his arbitrage plan without bothering with the actual arbitrage. For approximately ten months, Ponzi paid investors high and reliable interest out of funds provided by new investors keen to cash in as well. In the U.S. legal system, Ponzi schemes are classified as securities fraud and fall under the jurisdiction of the Securities and Exchange Commission (SEC 2019).

A Ponzi scheme requires a monetary investment which is given voluntarily to a central figure (or small team) who uses that money to pay dividends to previous investors (Gross and Vriens 2019; Keep and Vander Nat 2014; Pareja 2008). While a Ponzi scheme requires new investors in order to pay off previous investors, an MLM needs (but does not contractually require) new recruits in order for previous recruits—the upline—to earn commissions or rewards (Pareja 2008). Because a new recruit could make money simply by selling the product instead of recruiting new people, the MLM is technically different from a Ponzi scheme. The presence of the product (or service) for sale instead of straight cash transfers is what differentiates the two even if the product/service serves an ancillary function in practice.

In the immediate two decades of the post WWII period, the franchise model took off at an exponential rate in the United States. Enterprising souls could purchase the right to operate as an established business brand along with the right to (and constrained within) use that brand’s trademarks, patents, and operational mechanics through an initial investment and contractual obligation to future fees or royalties. Because the purchaser of a franchise was (and still is) buying a business operation, franchise licensing and selling does not legally fall under the Securities Acts of 1933 and 1934 (legislation enacted after the Great Crash and meant to protect investors). MLMs likewise avoid falling under the jurisdiction of the SEC by using the legal category of the franchise: MLMs pass the legal test by emphasizing in the paperwork that any potential gains in income, position, or business made by the individual distributor must emerge from the individual distributor’s own efforts and are not the responsibility of the MLM. Furthermore, the limited resources of the SEC curtail potential enforcement efforts in the first instance (Pareja 2008).

The rapid growth and sudden popularity of the franchise in the post-WWII period opened the door to fraud, primarily in the form of franchises which were sold on false promises of profitability and misleading information. In 1979, the FTC established the “Franchise Rule” which specified that information which must be disclosed prior to the sale of any given franchise or “business opportunity “(Pareja 2008, 91). Given the wide scope of activities which might fall under the Franchise Rule, the FTC further clarified that the rule only applied to franchises which required more than $500 investment within the first six months of the operation of the franchise. Importantly for the case of MLMs, training costs, voluntary inventory purchases (priced at wholesale), and purchases which are covered by a company buy back policy do not count toward the $500 investment figure. It is in this area between franchise and too-small-to-regulate-franchise in which MLMs operate and thrive (Pareja 2008).

Pyramid schemes require a monetary investment from an individual who then in turn must recruit other investors in order to recoup or increase their initial investment. Under a pure pyramid scheme, there is no product sold; there is only the recruitment of new investors into the scheme (Keep and Vander Nat 2014). Pyramid schemes are illegal first and foremost because of the misleading information and misinformation given to prospective participants, critically centering on promises of income. Prospective participants are usually promised that anyone could, with enough work and dedication, make it to the top of the company. This promise, if it is ever true, can only apply to early investors and is mathematically improbable, with improbability increasing for latecomers as the pyramid scheme grows. People who join later are all but guaranteed by mathematical probability to lose money (Gross and Vriens 2019).

Pyramid schemes that also sell a product typically require initiation fees, training fees, and/or an initial inventory investment cost (Keep and Vander Nat 2014). Pyramid schemes are also marked by pressure tactics to convince new recruits to purchase substantial amounts of inventory stock and training materials. Pyramid schemes further encourage and pressure members to engage in continuous inventory loading in order to climb the pyramid hierarchy or earn higher commissions. The push for inventory loading is therefore not premised on maintaining sensible levels of stock or for personal consumption, but rather for the purposes of potentially earning more income (Gross and Vriens 2019). Sales to an external (to the MLM) end-use customer are not significant to the total sales or to the focus of the distributors and are thus ancillary to the entire endeavor. A product pyramid scheme will always eventually collapse just like a pure pyramid scheme and for the same reason: it is mathematically impossible to keep any type of pyramid scheme running in perpetuity as the number of potential recruits quickly approaches zero given the geometric increase in the recruitment levels which would be required to sustain the pyramid scheme (Keep and Vander Nat 2014).

The legal definition of an MLM and its delineation from a pyramid scheme continually evolves through case law and is a complicated and technical definition and differentiation. The MLM sales structure tested U.S. federal courts in more precisely defining what might be considered a pyramid scheme as the FTC pursued and won cases against Holiday Magic, Koscot Interplanetary, and Dare to be Great during the 1970s (Keep and Vander Nat 2014). In 1975, the FTC codified a “pyramid scheme” as: “the payment by participants of money to the company in return for which they receive (1) the right to sell a product and (2) the right to receive in return for recruiting other participants into the program rewards which are unrelated to the sale of the product to ultimate users” (Federal Trade Commission 1975, 1181). Rewards for recruiting individual distributors can legally take the form of a flat reward or override commissions, when the former exceeds the latter, it is taken as an indication to the FTC that inventory loading is happening and that the operation is more pyramid scheme than MLM. This “Koscot test” attempts to differentiate an MLM from a pyramid scheme by clarifying that sales income earned by the individual distributor must not solely come from internal purchases or recruitment rewards—Koscot failed this test and was declared a pyramid scheme (Keep and Vander Nat 2014; Pareja 2008).

In the mid-1970s, the FTC filed a complaint against the Amway Corporation alleging that the company was operating as a pyramid scheme according to the established FTC criteria. In this case (FTC vs Amway), which lasted until 1979, Amway successfully argued that it was not a pyramid scheme primarily based on three critical rules within its company: 1) that any individual must (re)sell 70% of their purchases for any given month; 2) every individual distributor must sell to a minimum of ten separate people each month; 3) the company must have some type of buyback policy for individual distributors for unsold goods (Pareja 2008; Vander Nat and Keep 2002). In 1979, Amway won its legal battle and was declared not a pyramid scheme (Keep and Vander Nat 2014). In the Amway decision, the FTC used Amway’s guidelines to establish a legal demarcation between pyramid schemes and MLMs: in both U.S. courts and for the FTC, whether an MLM crosses over into a pyramid scheme depends on what has come to be called “the retail question.” The retail question asks whether the sales of the MLMs product are to end-use customers outside of the operating structure of the MLM or whether the sales are internal to the MLM operating structure through inventory buildup by the MLM members. This decision and interpretation have in turn made it much more difficult for the FTC to pursue MLMs on grounds of deceptive or exploitative practices (Keep and Vander Nat 2014, Pareja 2008).

Despite these court rulings and government regulations, MLMs continue to operate in the gray areas of law. The Amway rules of ten end-consumers per month and 70% resell—criteria that were not specifically included as the legal benchmarks the FTC would use—contain enough ambiguity and room for MLMs to continue to operate with questionable practices (Gross and Vriens 2019). Other MLMs have adopted various versions of Amway’s 70% rule in their attempts to answer the retail question and satisfy the loosely held criteria, but there has, to date, been no regulation put into place or court decision provided to clarify or specify what a codified and specific resell metric might entail or how it could be enforced (Keep and Vander Nat 2014 200; Vander Nat and Keep 2002). In accepting the Amway exception, the FTC essentially gifted MLMs ambiguous, legal tick boxes to prove their legitimacy (Pareja 2008).

MLMs survive because this ambiguity in law persists, primarily by clouding the discussion of the 70% rule, which with greater specificity could provide a clearer measure. MLMs argue, however, that they also function as buying clubs in the mold of Costco where members purchase the MLM products for their own consumption (Keep and Vander Nat 2014). This internal consumption isn’t illegal per se, buying clubs like Costco, require a membership and members can then buy in bulk for personal consumption in the home or a small business. Internal consumption is illegal if the practice is the quickest and easiest means by which the member can maintain their rank in the hierarchy or advance in the hierarchy and possibly earn more income since at that point, the MLM technically becomes a pyramid scheme (Gross and Vriens 2019). Even this distinction does not clarify the regulations; Amway, for instance, stipulates in its own literature that a “reasonable” amount of personal/household purchases or purchases made by the individual distributor for the purpose of giving out samples to potential customers count as part of the 70% (re)sell rule. There is no way to prove that individual distributors are buying products in order to achieve or maintain rank as opposed to personal or professional use. This allowance on the part of the FTC and the courts effectively neuters the Koscot test and renders the “Amway rules” feckless (Keep and Vander Nat 2014, 200; Vander Nat and Keep 2002).

The one route left open to the FTC to prosecute MLMs is if the FTC is able to prove that the MLMs made misleading claims about the potential income which could be earned by the individual distributor. This avenue, however has no teeth—MLMs already claim that how much any individual makes is up to the individual’s ambition and drive. The inclusion of an “earning potential may vary” disclaimer on their recruiting materials is enough to prove the point legally (Pareja 2008).

MLMs use slippery language in their terminology in order to mask the emphasis on recruitment and inventory loading. The former is especially important to obfuscate as success predicated on recruitment removes any meaningful distinction between MLMs and pyramid schemes. In pyramid schemes and MLMs wherein recruitment is the primary means of generating income, when the individual joins in turn determines the level of success any individual might be able to achieve. Mathematically speaking, later recruits to these types of MLMs and to pyramid schemes have a lower probability of success as there are fewer individuals left in the world population from whom they might recruit. With each new entrant, the probability of finding new entrants falls, regardless of the efforts of the individual as there is simply not an infinite number of humans in the population to support the geometrically expanding demands of the recruitment. While there is always a level of risk in any business endeavor, there is a statistical certainty that recruitment-based schemes will eventually zero out and the last to be recruited will fail (Vander Nat and Keep 2002).

At the organizational level, data is elusive; sales figures for individual MLMs are notoriously difficult to find. Amway for instance, is a privately held firm (twenty-fifth largest in the United States) and does not release data that is clearly connected to the specific levels in the hierarchy within their organization or data specific to any of the 100 countries in which it operates. Even those firms which are publicly held tend to release aggregated sales figures. Figures which are available are self-reported by the MLM, not verifiable, and categories relabeled within the MLMs add to the uncertainty (Keep and Vander Nat 2014).

Data which might help an individual distributor make a more informed decision is not made available by the MLM. When an individual signs up to be a distributor, the respective MLM and upline do not give the individual any information on market saturation for their area, for example. Without this information, the potential sales and possibility of future recruitment are impossible to predict. MLMs also use future figures of potential average income or possible monthly goals instead of historical figures of average income or failure or exit rates (Gross and Vriens 2019; Keep and Vander Nat 2014). Other information that is difficult to pry out of MLMs includes: current market saturation in a state, region, or locality; existing member/recruitment numbers within any specific geographic area below the national level; selling/recruiting tactics beyond generic pabulum to work hard.

Neoliberalism and MLMs

Neoliberalism is the prevailing ideological operant of the most recent stage in the evolution of monopoly capitalism over the last five decades. Neoliberalism embodies the ideological shift in the purpose of the state from one that has a responsibility to insure full employment and protect its citizens against the exigencies of the market to one that has a responsibility to insure protection of the market itself (Harvey 2005). Under neoliberalism, the state is thus preoccupied with the unimpeded functioning and expansion of markets rather than the general welfare of society or the particular welfare of any individual or group: the state legitimizes and prioritizes market activities above socially integrative ones.

Under capitalism writ large, the economic sphere separates from the other spheres of living—it becomes, in Polanyi’s terms, disembedded (1944). The disembedding intensifies under neoliberalism as does the encroachment into and subordination of the other spheres of living to the dictates and needs of the economic sphere. The economic sphere operates under its own internal logic—that of the market. All the other spheres of living become accommodating and facilitating of that logic; spheres that resist such accommodation are marginalized from normal daily life until they disappear. While neoliberalism is at its core an economic project, this disembedded dictatorship usurps cultural projects, sets the political agenda, and establishes social norms, although the individual living within this world is cast as a free and fully autonomous being. Individuals are left responsible for their own welfare under neoliberalism.

Indeed, neoliberalism teaches through the socialization process that each individual should be accountable to oneself, which also leads to the erosion of each individual’s responsibility to others and to the community as a whole. Society is then comprised entirely and solely of self-interested, atomistic individuals seeking to forward their own agendas. The emphasis on individual accountability and responsibility naturally segues into the power of the individual acting alone (Wrenn 2015). The enabling myth of neoliberal capitalism as a meritocracy counters any examination of systemic injustice or structural inequalities. Even when larger social issues might be begrudgingly acknowledged, the narrative of individual responsibility takes over and the individual is encouraged to overcome adversity while the root social causes are never addressed. Individual fortitude and persistence, rather than social change, are prevailed upon to combat job insecurity and economic precarity; tough economic times for others are met with scorn rather than empathy (Scharff 2016).

The historical roots of the modern MLM industry stretch back to the nineteenth century; the traveling salesman followed by the door-to-door salesman⁴ are the ancestors of the larger direct selling industry. Direct selling is the umbrella term for any buyer-seller exchange that occurs outside the typical retail space; MLMs are a subset of the direct selling industry. The growth of MLMs is exceedingly difficult to track; MLMS operate under strict, internal interpretations of proprietary information, are privately held companies, and have an aggressively litigious track-record (Vander Nat and Keep 2002; Keep and Vander Nat 2014; Lan 2002; Walsh 1999). The following data⁵ nevertheless, gives us an approximation of the growth of MLMs as a percentage of those companies who 1) belong to the Direct Selling Association (DSA) and 2) are classified as “multi-level.”

Table 1. MLMs as a Proportion of DSA Member Companies

Year	Proportion
1970	< 5%
1990	25%
1996	> 70%
1999	77.30%
2000	78%
2009	>90%

Source: Taylor 2011, 406

From this (unverifiable) data, it would seem that the MLM industry experienced moderate growth during the 1980s, perhaps owing to the 1979 Amway decision which opened the regulatory door for MLMs and rapid growth from the 1990s forward. The proliferation of MLMs and individual distributors is especially apparent on social media platforms which currently appears to be the primary sales medium. In the following subsections, we explore why that explosive growth appears logical in the neoliberal era.

Neoliberal Work

Cost Cutting

The core contradiction within capitalism—that of the accumulation imperative clashing against the drive to cut costs—takes on a new form in the neoliberal era: that of pushing as much of the remaining labor costs on to sources external to the firm as possible. Some of these attempts are obvious, such as the outsourcing of work previously performed by in-house employees. Other attempts are less overt, such as state subsidization of private sector training costs through the 1996 Personal Responsibility Act of 1996 which, under President Bill Clinton, made the receipt of benefits contingent upon participating in training programs funded by the state. The rapid growth of MLMs during the neoliberal period provides a particularly gross example of the externalization of labor costs (Wrenn 2015).

The difficulty for firms who use a general direct-to-consumer selling model lies in the extra costs of using such a decentralized workforce. Training, animating the sales efforts, and constant recruitment required by high turnover of sellers impose significant costs in terms of operational management. The MLM model takes these operational expenses and pushes them on to the independent contractors (Vander Nat and Keep 2002). The MLM model is essentially able to push significant fixed and variable costs—even those variable costs created by using the direct selling model itself—on to the individual distributor. It is a remarkable cost-cutting and liability-pushing feat in the evolution of the capitalist firm.

MLMs do not occupy typical retail spaces: the individual distributors act as marketers, salespeople, warehousers, and distributors. Distributors are expected to promote the product lines and the MLM itself through social media, for instance via MLM product placement in otherwise unrelated photos, by posting about themselves enjoying the extra money earned from their “side hustle,” or working from a scenic spot. They are expected to sell their product by engineering their own giveaways, discounts, or sales drives to meet end-of-the-month quotas. Distributors are encouraged to store inventory in their homes to immediately meet sales orders, give away as samples, or for their downlines or customers for whom they act as a distribution center.

Distributors bear the responsibility of training new recruits. Aside from the standard paperwork package wherein distributors sign affirming they understand the legal framework of the franchise; new recruits receive no direct training from the corporate MLM.⁶ The responsibility for the training and enforcement of the rules of any independent distributor falls to their upline: uplines guide, train, and support their downlines and the core MLM does not bear the cost or the liability involved in training. Uplines have an incentive to train and assist their downlines since they earn a commission of what downlines sell and off the recruits of the downlines as well.

Given the independent contractor status of distributors, the usual means of labor management through bureaucratic mechanisms does not exist. MLMs, however, do not eliminate bureaucratic control nor do they empower the individual—individual control over their “business” exists alongside the typical bureaucratic control of a franchise, wherein the distributer must still abide by the formal rules and hierarchy within the organization (Gross and Jung 2009). Labor management, however, is controlled through the network up and down the distributor lines. Downlines have an incentive to monitor their uplines—downlines can switch to a different upline, taking their respective downlines with them. This two-way monitoring acts as a loose disciplinary mechanism and serves to create insularity within the “genealogy” of the up-down-lines (Lan 2002). Within this system of labor control, power is diffused throughout the distributor network and all actors monitor the practice of those immediately surrounding them—from customer through the upline, stopping short of the corporate MLM.

Limiting Liability

Legally, the distributor network operates independently from the corporate MLM entity (Gross and Vriens 2019). This is by design. It allows the corporate side of the MLM to disavow misleading or false statements made by distributors.

The distance between the MLM corporation and any potential end user protects the MLM from accusations of false and misleading claims, allowing the MLM as an organization to situate the blame on rogue individual distributors who the MLM does not and cannot closely monitor or control—a few bad apples. The MLM is able to distance the organization even further from individual distributors through the use of external training organizations whose services such as seminars, conferences, online meetings, and training sessions individual distributors pay to attend, or whose lessons can be imparted from an upline individual distributor to their downline individual distributors (Gross and Vriens 2019).

The externalization of training shields corporate MLMs from direct legal liability, but it also means that the sales and recruitment tactics used by individual distributors is highly variable. This is problematic especially with respect to health-related products as the individual distributor (often referred to as health advisors or coaches), receives training primarily from another individual distributor. As a result, individual distributors sometimes make exaggerated, unsubstantiated, even illegal claims of the benefits of their product. Of particular concern is when the individual distributor actually is an expert—such as MDs or nurses—who promote health and wellness MLM products in their offices. General misinformation about the quality of the products is amplified by the MLM-encouraged selling technique of individual distributors sharing their personal stories about how well the product worked for them rather than citing research studies (Gross and Vriens 2019).

Both product and earning potential claims are perennial problems for MLMs. In April and June of 2020, mere weeks after the White House officially declared the Coronavirus outbreak and national emergency (March 13, 2020), the FTC sent out a total of sixteen letters to different MLM companies regarding false or misleading claims made by either the company or individual distributors: four earnings claims, four health claims, and eight earnings and health claims. The FTC included the following examples in one of the letters (FTC 2020a; FTC 2020b):

“Got the coronavirus heebeegeebees? Boost your immunity with this amazing deal!!!!”

“I can tell you that there’s thousands of people that are out of work right now. They’re all looking for a way to go earn money. This is a great stimulus package, because you get to teach somebody how to go earn $1,730 literally in their first 10 days in the business.”

As discussed previously, it is difficult to get income numbers out of any MLM organization; it is also surprisingly difficult to get income numbers from individual distributors, in large part, because they disagree about how to calculate net income. For instance, some individual distributors count the savings they receive from the discount for their purchases for personal consumption as income, while only some subtract training costs from net income. Individual distributors determine how to calculate their respective net income without clear, definitive advice from the core MLM, so comparing income figures as self-reported by individual distributors is impossible. As a result, there is huge variation in the earning potential claims made by distributors in their recruitment efforts (Pratt 2000b).

Neoliberal Relationships

Polanyi and the Warm Market

As capitalism evolves, continual technological advance in combination with capital’s relentless accumulation imperative serves to amplify material progress. The increasing momentum of market intensification encourages Polanyi’s disembedding of the economic sphere (Polanyi 1944). The concurrent intensification of the market mentality and the continued disembedding of the economy drives a deeper wedge into the development of personal relationships as anonymity of the market, pecuniary values, and the competition of emulation serve to distance individuals from one another by eroding, preventing, or calling into question social bonds and collective goals. Although Polanyi wrote prior to the emergence of neoliberalism, his concepts of the disembedded economy and the protective response nevertheless describe quite clearly how neoliberalism emerged and continues to evolve (Dale 2010; Wrenn 2020 and 2021). The ascendance of the MLM organizational model is a clear case study of Polanyi’s disembedding within the context of neoliberalism and the transforming of social and familial spheres into transactional zones.

MLMs work by embedding within the individual distributor’s existing familial and social relationships—individual distributors are encouraged to begin their recruitment and sales efforts with their “warm market”—their families, their social circles and social media contacts, and alumni networks (Gross and Vriens 2019; Vander Nat and Keep 2002). Existing social and familial ties constitute the core of the recruitment and sales strategies with invocations not to deny loved ones “the opportunity” to enjoy their products or to join the MLM team. Indeed, individual distributors are encouraged to embrace the awkward transformation of the familial or social relationship into a transactional one by reconceptualizing the sales pitch as sharing their favorite products and the approach to recruit as a gift they are giving to someone important in their life—the gift of opportunity (Bloch 1996). The individual distributor’s pretense of offering opportunity or helping with the wonders of the product/service sold further undercuts the social relationship. Relations already under strain from the intensified market setting are further stretched as Polanyi’s disembedded economy subordinates social and familial relations in real time. The intrusion of the market into the social sphere is literally part of the MLM strategy.

In the traditional retail exchange, contact between seller and buyer lasts the length of the exchange and does not require the swapping of personal information. The potential customer-salesperson relationship ends immediately when the customer either leaves the retail establishment or purchases the product/service, unless the customer voluntarily decides to continue the relationship with repeat business. At all points in the relationship, the customer is in control and their decisions dictate the terms of the relationship with the retail person. This is not the case when the retail salesperson is a friend or relative. In the MLM market, the exchange between buyer and seller must be maintained; once a person buys the MLM product, the distributor is encouraged to continue pursuing sales, and having already won a “yes,” push further for recruitment. An individual distributor’s relationship with their family and social circle is thus pushed into a never-ending retail transaction (Bloch 1996; Lan 2002). Because the individual distributor primarily approaches their “warm market,” there are fewer complaints about the practice made to any regulatory authority (Bloch 1996).

To deepen an individual’s commitment to the company, MLMs encourage members to distance themselves from anyone—including family and friends—who is critical about the individual joining the MLM in order to cut negative influences from the individual distributor’s life—influences which, according to the MLM, either do not believe in the individual and their dream or secretly do not what them to succeed (Herbig and Yelkurm 1997).

This social exclusion—an expression of Polanyi’s protective response—works both ways, it should be noted: those who want to avoid MLMs and the constant sales effort will often cut out of their lives anyone who works for them, while the individual distributors do likewise to anyone who disparages their work (Pratt 2000b; Wrenn 2021). The ties between individuals within the distributor network grow stronger the more isolated the individual begins to feel as family members and their social circle distance themselves from the market mechanism which has come to dominate the individual distributor’s every social interaction. The individual distributor within an MLM creates and exacerbates their own isolation through the MLM from which the MLM further benefits as the more estranged the individual is, the more likely their only social connections remains within the distributor network. The isolation and alienation reinforce the individual’s commitment to the MLM—even in the face of financial failure.

The Alienated Entrepreneur

Socialization practices within any given society are influenced and shaped by the dominant institutions within which those practices are formed and evolve. This is not to say that there isn’t interactive influence between socialization practices and institutions, but rather to underscore that the previously discussed dominance of the economic sphere over all other spheres of living under capitalism results in socialization practices that ultimately serve the economic sphere. Under neoliberalism, the individual’s identity, sense of self, and self-reflection are all defined, influenced by, and measured against standards set within the neoliberal frame (Wrenn 2014). Individuals are encouraged to think of themselves as business entities and make personal decisions primarily based on market or economic consequences rather than on the potential consequences to their relationships. To draw on the work of Michel Foucault, individuals become “entrepreneurial subjects” (Brown 2015; Foucault 2008; Scharff 2016).

The social isolation that comes with individual distributors cutting themself off from negative, unsupportive people serves the MLM in several critical ways. First, the expression of in-group doubt or circumspection is discouraged by the threat of group exile or reprimand for expressing negative and self-defeating concerns. As well, the social isolation raises the stakes on the individual distributor leaving the MLM—in order to do so, they would have to also leave behind the conscribed MLM social group, and the longer they have been a part of the organization, the more socially isolated they will likely be and the more difficult it will be for them to disentangle themself from the MLM. Lastly, the social isolation assists in the filtering of information. Should the individual distributor begin to have doubts about their participation in the MLM, the MLM social/familial circle works to maintain the company line. Unless the individual distributor seeks information on their own or from sources outside of the MLM social circle, the information they find will direct them to blame their own failings and support the MLM (Pratt 2000a).

Even if the individual distributor manages to find some success, the social isolation and insulation created by the MLM will regardless increase, the further up the distributor network the individual ascends. As a distributor recruits and creates downlines, they must, as an upline, then invest even more time into the work of the MLM; added to their constant duties of selling and recruiting, they now must train, mentor, and motivate their newly acquired downlines. The increasing demands on the time of the individual distributor insures that the longer they are part of the MLM and the higher up in the hierarchy, the more socially insulated they become even if they has not severed ties with resistant customers, and the more reluctant they will be to leave the MLM (Pratt 2000b).

The MLM, meanwhile, provides a ready-made and like-minded community for the individual and draws upon the ersatz shared bonds between individual distributors and the overall organization to create the illusion of work that is meaningful, impactful, and autonomously driven (Gross 2010). Indeed, MLMs often present themselves as a full package—not only do they offer income opportunities, but often sell themselves as opportunities to establish and enrich social ties especially through intra-organization relationships, to join a “family,” a “team,” or a “sisterhood” of like-minded and goal oriented individuals, and to become a part of a larger cultural project often with lofty goals for creating a better world, improving the health of the planet, or bringing jobs and hope to the struggling and disenfranchised (Gross and Vriens 2019).

MLMs, similar to many corporations, appeal to shared values and a corporate community to try to bond the organization to the individual. Invocations of a shared spirituality, whether religious or secular, represents an attempt to fabricate a sense a community among workers as people who share common bonds of making the world a better place or achieving actualization or life meaning through the work of the corporation (Gross 2010). Many MLMs incorporate religion, especially Christianity into the mission, training, overall image of the company. Through this manufactured community built around a shared ideology or mission, MLMs can become the defining feature of members’ lives.

The insularity within the “genealogy” of the up-down-lines makes it more difficult for the individual distributor to leave the MLM because it means leaving behind this social and ersatz familial network as well. The artificial family created within an up-down-line differs from the familial bonds in one especially crucial respect—reciprocity. Within a family, reciprocity is not expected to be even or immediate. Within the distributor network, however, reciprocity more closely resembles the immediate expectation of equivalent reciprocity in the market exchange relationship. Therefore, no matter how insulated or well-tended the distributor network, the constant tension in the conflation of the private and public realms, the demands of market-like reciprocity within this constructed social circle, the persistent need for emotional management of oneself and their network, and the two-way monitoring of practice and positivity means that the genealogical line is likely to falter. Added to this delicate ecosystem is the financial interdependence between distributors (Lan 2002; Waller and Wrenn 2021).

The Anti-Leisure Class

Although MLMs frequently use the ability to “create your own flexible work schedule” in sales and recruitment as a selling point, it quickly becomes clear that in order to ascend the hierarchy or make a net profit of any kind, distributors must constantly be on-the-clock and readily available to speak with any customers, potential recruits, as well as to uplines and downlines. Social media platforms transform into platforms for the distributor to sell, recruit, and market; the distributor is encouraged to curate posts, especially through pictures and videos, about how the merits of the products and about how much the MLM has helped them to attain their goals, find financial freedom, and increased their leisure time. Social media and leisure time quietly mutate into business media and work-time.

Once the individual distributor either taps out their warm market or having recruited from their warm market, now shares the same potential customer/recruit base with their downline, they must then widen their social networks, making “business contacts “with friends-of-friends, friends from the individual’s more distant past, and strangers. The cold call becomes more prevalent. The farther removed the prospective customer or—ideally—recruit from the individual distributor’s immediate social and familial circle, the more work they must dedicate to strengthening those ties (Lan 2002).

When the individual distributor begins to work on their cold market—approaching strangers or acquaintances in real life or through social media—they subject their entire life, even quotidian routines such as going to the grocery store, into work. Every person proximate is a potential customer or recruit. Because of the high rejection rate, uplines train downlines to play a numbers game—to make x contacts per day and y posts on social media. Indeed, MLM materials encourage independent distributors to engage with as many people as possible because one never knows whether someone might be interested in the product/service or “opportunity”; members are encouraged to evangelize the “opportunity” at every chance.

Social ties and social occasions are resituated as opportunities to either sell the product or recruit and the line between work and leisure is thus obscured—what Claudia Gross (2010, 63) refers to as the “colonization of the self.” Within the recruitment process, this muddying of social relationships is sold as a means of making money while engaged with leisure but without critical examination of how those money-making endeavors might transform the very nature and meaning of those social relationships and engagements (Gross 2010). Another sales tactic suggested by the MLMs is one that dates back to Tupperware—that of throwing a party. Today’s MLMs differ however by attaching the sales pitch to parties coordinated for some other purpose without telling the guests ahead of time (Bloch 1996).⁷

Subjecting established relationships and potential new ones to the market relationship puts all of those relationships under strain. When the product/service or opportunity is refused, that “negativity” is potentially cut from the member’s life, especially if the individual approached has a disparaging opinion about MLMs. This outcome leaves individual distributors especially vulnerable to the possibility of only surrounding oneself with other MLM invested individuals and cutting oneself off from well-reasoned critiques of the MLM model (Bloch 1996).

In terms of both their warm market and cold market, the individual distributor expends an enormous amount of emotional labor. With the warm market, they must emotionally manage the constant tension of a close social or familial relationship that has also become a market-based relationship. With their cold market, they must constantly nurture and tend to this primarily market-based relationship—transforming it into a personal relationship within that market setting—in order to keep the repeat customer, or more importantly, to maintain a recruit’s participation and activity in the MLM. Emotional management with their warm market takes the personal relationship into the market while the emotional management with their cold market requires making the market relationship personal. Combining the personal realm and the market setting and sustaining those transformations requires an enormous amount of emotional labor and internal negotiation of the individual distributor’s self-reflection of their core identity (Lan 2002). The private and the public spheres thus overlap (Waller and Wrenn 2020).

Neoliberal Individual

Capitalism has always relied on the atomization of the individual in order to function, but the atomized individual under capitalism and the atomized neoliberal individual differ, especially within the workplace. Since the late 1970s, the “enterprise within organization” management theory has grown into standard management practice. Enterprise-within theoretically operates as a means of internal organizational control which gives workers greater autonomy and responsibility and (ostensibly) eliminates dictatorial bureaucratic control. The efficacy and ethics of the management practice is hotly contested. Critics point to the darker side of enterprise-within management where every employee is treated as their own “entrepreneur” within the organization and thus is individually responsible for their own performance and charged with self-advocacy. Further, enterprise-within assumes that the individual worker-entrepreneur finds personal fulfillment in this arrangement. Work is thus assumed to become a prime motivator within the individual’s life—a means by which the individual can and should find self-actualization. The worker themself is transformed under the enterprise-within management practice.⁸ The pretense of autonomy quickly unravels to reveal that the enterprise-within practice replaces bureaucratic control with the internal transformation of the individual worker who occupies separate private and public spheres into the entrepreneurial worker whose public and private spheres merge and whose sense of self and purpose is shaped by the company. The enterprise-within takes on a more recognizable and overt form within MLMs. Here, the individual distributors are actively encouraged to self-identify as “entrepreneurs” who run their “own business” and are “building their own empires” (Gross and Jung 2009).

The economic immobility of capitalism primes individuals to be vulnerable to messages which offer the keys to entrepreneurship and the unlocking of financial success. MLMs are able to sell themselves as “equal opportunity” because they require low start-up/initiation costs and require no formal education or training (Pratt 2000a). The fact that anyone can join—with relatively low initial uptake costs—and the fact that the commission system is the same for all are held up as evidence that it is only individual effort that differentiates where the individual distributor resides in the hierarchy. Ironically, this veneer of equality is held up as an alternative to the inequality found in the economy writ large (Gross 2010).

The equality of opportunity framing is further deployed by the MLM to explain why an individual might fail within the company—it is the individual’s fault: the individual’s lack of effort, lack of ambition, or lack of work ethic is to blame, not the MLM. The MLM thus absolves itself of responsibility for any failure or hardship the individual might experience. Amway, for instance, frames its policy that anyone, regardless of experience or education, can join as a demonstration of the U.S. American ideals of democracy and meritocratic rewards—Amway’s offers of equality of opportunity and success in the organization is possible through individual effort (Gross 2010). Not only do these ideals find special resonance with people in the United States, but they also restore to the individual a sense of control over their own destiny along with autonomy in their work. All MLMs emphasize the ideal of meritocracy, in fact, it is doubtful that any MLM could exist without relentlessly emphasizing that individual effort determines outcome (Pratt 2000a).

The ideological missives from the core organization in whatever rhetorical spin they might appear all contain the underlying message that the individual distributor is responsible for anything that might happen and that the individual distributor therefore has control over their circumstances (Pratt 2000a). While the latter is ultimately meant to be empowering, the former instructs the individual distributor of the core of neoliberalism—individual responsibility.

MLMs stress the role of choice for the individual distributor from the moment of recruitment: the recruit can choose to change their life, can choose their own hours and level of commitment to the business, can choose to whom they offer the opportunity of the MLM, can choose to surround themself with positive influences, can choose to stick with the business or quit (Pratt 2000b). The MLMs’ emphasis that the individual distributor decides their level of engagement with “their business, “thus fuels the veneer of autonomy and control that an individual distributor possesses. The MLM shifts all responsibility on to the individual: it is their choices that created their success or failure as a distributor.

Individual success stories are used for training and promotional purposes to prove that anyone is capable of finding success (Gross 2010); those stories focus on the successful few who sit high in the hierarchy (Gross and Vriens 2019). Members are also strongly encouraged to regularly attend member meetings during which success by individuals is lauded and individuals who have not met their respective goals are shamed but encouraged to rededicate themselves to selling/recruiting. During these meetings, members are also instructed to maintain positive thoughts—negative thinking and lack of mental discipline are blamed for falling short of monthly goals and expectations (Herbig and Yelkurm 1997).

Indeed, MLMs operate on the premises of positive psychology—that by exposing the mind to positive images, messages, and people, one will be more positive and will flourish. Exposure to negativity will turn a person’s mind to negative thoughts and in so doing, diminish one’s productivity and motivation: negativity begets negative consequences, positivity opens doors and unlocks an individual’s potential (Pratt 2000b). Individual distributors are trained to always and only speak positively about the MLM, the products, and their own “business,” which means that when things aren’t going well, individual distributors must lie. The pressure to remain positive increases as the individual distributor acquires more downlines, which means that the more successful an individual distributor is in climbing up the distributor network hierarchy, the more emotional management is required of them (Lan 2002).

In addition to the ideals of meritocracy, choice, and positive thinking, MLMs also emphasize the ideal of individual freedom: the individual is free to choose how committed they are to the aims of the MLM and thus is free to choose how successful they are. The underscoring of the MLM’s ideologies with the consistent message of freedom to choose reinforces the operational imperative of individual responsibility, ritualizes the “choice “of positive thinking, and frames the individual’s commitment to the MLM as something that one actively engages rather than as a behavioral pattern reinforced through the organizational practices of the MLM. Behavior that is habituated through the organizational practices of the MLM become internalized over time—the individual adopts the organizational practices and accompanying belief systems as one’s own—and the individual becomes more invested in the MLM financially, psychologically, and socially while they becomes more deeply embedded in the MLM as an institution (Pratt 2000a).

Conclusion

The MLM model taps into the deeply ingrained U.S. American belief in the Horatio Alger mythology—that everyone is, in John Steinbeck’s words, “a temporarily embarrassed capitalist” (1960, 93). Moreover, MLMs capitalize on a generalized suspicion among the proletariat that there is a secret means by which wealth might be achieved. This is not surprising when U.S. Americans—well socialized in the ideas of meritocracy—fail to see their effort and work ethic matched by monetary rewards. Climbing inequality and increasingly lop-sided distributions of income further fuel these suspicions and encourage individuals’ susceptibility to income promising schemes (Walsh 1999).

During the 1970s, the FTC established two regulatory standards which largely defined the legal terrain in which MLMs are allowed to operate: the Franchise Rule and the Amway Rules. The former regulation took MLMs out of the jurisdiction of the SEC and the latter lacks enforcement power given the fungibility of the purchases by individual distributors. Individual distributors self-report the nature of their purchases, so they have no incentive to report honestly (and are often not honest with themselves) as to what “counts” in the 70% resell rule, and some MLMs simply do not monitor the self-reporting closely (Gross and Vriens 2019; Keep and Vander Nat 2014). This regulatory leeway opened the legal space for MLMs to prosper, and since the 1980s, the business model has exploded.

The MLM model is an exercise in cost shifting as overhead costs such as job training, recruitment, and the supervision of work is shifted from the company on to the individual distributor (Keep and Vander Nat 2014). Much like the gig industry, MLMs represent a new level of exploitation of workers that is unique to neoliberalism, one where the workers are responsible for an expanding portion of the production/service process with shrinking shares in the distribution of income more than any previous stage of capitalism. As well, MLMs demonstrate a heightened disembedding and enshrining of market relations over familial and social relationships; alienation is deliberately nurtured by the MLM (Wrenn and Waller 2021). Neoliberalism depends on this intensified alienation; more specifically, it depends on the dissolution of community, of familial reciprocity, and the veneration of individual responsibility with the re-construction of communities centered around the health of the business.

MLMs grew and continue to expand in a neoliberal landscape that reinforces their institutional evolution and which the growth of MLMs reinforces in turn. We must be extraordinarily careful not to blame the victims of these schemes or to focus our efforts on helping distributors to understand the mathematical improbabilities and faulty logic behind them. Social scientists instead need to recognize that individuals fall for these schemes because of the promises MLMs offer; promises which stand as indictments against capitalism writ large. People who become MLM distributors are seeking autonomy, flexibility, and economic breathing room; they crave work that is meaningful; and they have a deep desire to help their family, friends, and communities. It is neoliberalism that exploits and perverts those impulses and turns every facet of living into a transactional exchange.

Disclosure Statement

No potential conflict of interest was reported by the author.

Additional information

Notes on contributors

Mary V. Wrenn

Mary V. Wrenn remains a Senior Lecturer in Economics at the University of the West of England, Bristol, UK. The author would like to thank the anti-MLM community, especially Josie Naikoi, Savy Leiser, and Monica Hayworth, for their sharp insight and relentless agitation against the MLM machine.

Notes

1 The Body Shop and The Body Shop at Home have traditional retailing and MLM selling, however, so far it remains the exception.

2 Under U.S. tax code, individual distributors are considered 1099-contractors (Internal Revenue Service 2021).

International reply coupons are vouchers which allow for a person in Country A to send postal mail to a person in Country B and with that voucher, the person in Country B can purchase stamps from Country B in order to send a reply back to Country A. It acts as a sort of international version of including a self-addressed stamped envelope in a mailing within domestic borders. The United States stopped selling international reply coupons in January of 2013 (USPS n.d.).

4 Typically, traveling and door-to-door salespeople were men, although there are a few notable exceptions. The first African American millionaire, C. J. Walker, earned her money as a door-to-door direct seller for Annie Turnbo Malone who, around 1900, tapped into a market largely ignored by retail forces by selling hair treatments to African American women (Keep and Vander Nat 2014; Peiss 1998).

5 The data is from a self-published book which cites the author’s calculations as based on industry data from the Direct Selling Association (DSA). The 1990 and 1999 data specifically are sourced to remarks by Neil Offen, president of the DSA, according to a separate source (Sheffield Group 2014). The DSA responded to direct queries from the author but only pointed to data which is already available on the DSA website (www.dsa.org) and only goes back as far as 2017.

Although most MLMs will hold conferences and functions with motivational speakers, awards ceremonies, and celebrities from within the organization, these conferences function more like pep rallies than training workshops and most of the time, require the distributor to pay to attend. Distributors with downlines are also often encouraged to pay for their and at least some of their downlines to attend.

7 This happened to the author twice while living in Utah—the alleged MLM capital of the world.

8 This is a manifestation of Foucault’s entrepreneurial self within an organization.