Is MLM a scam? Is it legal? Is it moral, ethical, etc?

The short answer is: maybe.

This is the cause of 99% of the flamefests, arguments, and general disagreements about MLM. Many people contend MLM is immoral or unethical. Many Attorneys General (who ought to know what they're talking about) say a properly-run MLM is perfectly legitimate and ethical. Who's right?

The truth is, MLM is not inherently good or evil any more than capitalism is good or evil. Both can be done ethically, and both can be done unethically. It depends on how a particular company is designed and managed.

Since the MLM industry is very young (about 40 years old), the law is still in flux. There are admittedly many MLM companies that are nothing more than scams, get-rich deals for the owners and their cronies, glorified chain letters, etc. Some of them even manage to skirt around the legal issues and avoid prosecution. There are other companies that have legitimate products, and may have been in business for many years, but which are run in such a way that many people get burned -- old ladies investing their retirement funds to buy a garage full of products, and so on. Most people would agree these companies, or at least the distributors that do the questionable practices, are not very ethical.

On the other hand, there ARE many companies that are run legitimately, legally, and ethically. They produce good products that are valued by customers, and give many people the opportunity to improve their financial situation.

The anti-MLM people will often assert that MLM companies and people sell unrealistic fantasies of income potential, recruiting "cannon fodder" to fatten their upline's bonus checks. This view is understandable, but misses one critical point: in general, the new person has the SAME OPPORTUNITY to build a group as the fat cat upline guy. The upline has worked hard, maybe for years, to build the downline that is now rewarding him so richly. The new person has invested maybe a couple of hundred bucks and a few hours. It's only fair that everyone starts out in the same place -- AT THE BOTTOM -- and everyone has the SAME chance to build a downline of their own.

The major exception to this is in the theoretical case of "saturation." In this situation the company has grown so much that a large percentage of people who would be interested in enrolling have already enrolled. (NOTE that this does NOT mean "EVERY person is enrolled"!) The new person has a much harder time finding new recruits than the upline person did N years ago. The new person has several choices: go with the established company, and live with the saturation; go with another company that has no saturation problems; or give up.

On the other hand, while it may be a bit harder to find new prospects when a company is mature, the new person who joins the mature company has MANY more tools and support mechanisms available to him/her than the "old hands" did back at the start of the company. There are probably also many more products, more professional literature, etc. While those pioneers may have had wide-open spaces to settle, they also got more arrows in their backs. It works out pretty evenly.

In actual practice, saturation is very seldom a problem. It may be easier or harder to find new prospects for a particular company in a particular location, but there are very few cases that are actually "saturated." The thing to understand is that saturation is not a clear-cut, yes-or-no situation; one company may be CLOSER to saturation than another, but neither might be actually "saturated."

The anti-MLM argument often runs calculations of exponential growth, and demonstrates that the entire population of the planet will be enrolled within a short period. This is an intellectual exercise rather like the example of "one pregnant mosquito could carpet the earth in mosquitoes by the end of the summer." In other words, in actual reality, it doesn't happen that way. The growth rate is normally much slower than people realize (especially once a company gets larger), and slows down as a company approaches saturation. It may get harder to enroll new people in a large and near-saturated company, but NO company in the history of MLM has ever grown fast enough to exhaust its potential marketplace. More people turn 18 every year in the United States than are enrolled in all MLM companies combined. So far, at least, the growth of MLMs hasn't kept up with the growth of population.

So, bottom line: In the opinion of many people, MLM *can* be done legally, morally, and ethically. It can also be done unethically and illegally. Choose your company carefully.