Report 76 Business Practices Committee

Although a smokescreen of other advantages is often used, the only genuine product of these schemes is money and the scheme's continued existence relies totally on the ever increasing numbers of new participants. The success of the promoters and its participants is dependent on the money received from its participants and new participants on a continuous basis. The potential advantage to consumers who become participants lies in the right to recruit new participants. The incentive to new participants to recoup their initial cash payment lies in the canvassing of further new participants on which a scheme is dependent.

The proponents of schemes, such as Newport, argue vehemently that no saturation point could be reached. Theoretically and mathematically this might be the case, depending on the underlying assumptions. The extent of a new member's possible earnings is clearly limited by the extent of the market. And the market is limited. There is, at any time, a finite number of people with the buying power to become members of a scheme. The population growth rate does not match the exponential rate required to make the scheme viable for all participants over a relatively short period. Most of the people that join these schemes do so with the expectation of making a handsome profit in a few months and not over a period of years.

The Committee was presented with mathematical models which seemed to indicate that a scheme such as Newport could experience a stable growth rate. But this stable growth rate does not attract members to the scheme. When a stable growth rate is achieved, it could take many years before the number of participants doubles itself. The only factor that really attracts members is the phase of rapid growth where fortunes could, and have been made, in months. During the slower growth phase interest in the scheme declines. It would seem that this decline in interest is an exogenous "switch off" of the scheme. A "switch off" of the scheme would lead to the collapse thereof.

The Committee took note of a number of theoretical models but these models are oversimplifications of reality. They do not reflect the real world, and for this very reason they are called models. There could probably be just as many theoretical models on the saturation issue as the number of econometricians. The outcome of each model will depend on the underlying assumptions.

In these schemes, at any one point in time, present or future, the majority of the participants will never recoup any monies at all, irrespective of the length of existence of the scheme.

The longer the scheme operates, the more difficult it would become for a member to find further potential members. Only a growth in the target market would provide potential members. The growth in the target market would also have to be equal or higher than the exponential rate required for everyone to recoup their payments within a reasonable period of time.