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The Anti-Consumer Agenda

posted by Adam Levitin

I often find myself annoyed by left-wing (and occassionally right-wing) anti-business screeds that decry corporations, big business, etc.  I don't find anything inherently troubling about corporate form or business size, and I have no problem with profit-motivated actors (individual or corporate), so long as they play fair. Mindless attacks on the business community have the unfortunate effect of undermining perceived validity of more targeted, thoughtful concerns through a guilt-by-association phenomenon. 

But business and consumer interests often diverge. Now, it should hardly be controversial that there is an unequal playing field between businesses and consumers. Generally, businesses know more about their products than consumers and have more bargaining power than consumers. (Yes, there are information assymetries running the opposite way, which is a particularly salient problem for credit and insurance products.) For many businesses, it is important to maintain this assymetry of information and bargaining power, as there's profit in it.

In theory, and I emphasize in theory, competition should eliminate many of the problems these assymetries create for consumers, but there's no such thing as a perfect, complete market, just varying degrees of market imperfection, so competition alone cannot be relied upon to solve everything. What, if anything else, should be done is an open question, but when one looks at a range of seemingly unconnected recent public policy issues, a troubling common theme emerges.

Instead of a laboratory of experiements to help level the b2c playing field, we see a different trend emerging:  a distinct anti-consumer agenda that aims to reduce consumer bargaining power and information.  Consider the common theme that runs through the following issues: 

  • AT&T v. Concepcion (waiver of class actions in arbitrations)
  • Attempts to bust up public employee unions (and attacks on unions in general, such as the failure of Card Check legislation)
  • Citizens United (corporate speech rights)
  • Attempts to retain the current corrupt swipe fee system (failure of antitrust)
  • Attacks on public health insurance (prohibition on Medicare bargaining over prescription drug prices and the death of the public option)
  • Attempts to first kill off and now to maim the Consumer Financial Protection Bureau

Class action arbitration waivers and attacks on unionization are attempts to prevent consumers from banding together to gain greater efficiency and bargaining power to pursue their interests. (Yes, labor isn't the same as consumers, but here it's the purchase of wages in exchange for labor, instead of the purchase of air time minutes for cash.)  Citizens United runs the other way--by permitting corporate spending on elections, it helps drown out the voices of individuals. 

Some readers will reasonably argue that I am stretching to fit swipe fees, one of my pet issues, into this frameworks, and they are right that it doesn't fit as neatly as the other points. But swipe fees are ultimately about an exercise of market power by financial institutions. This market power is exercised directly at merchants, but ultimately part of the price is paid by consumers. I see this as an example of how antitrust law has become ineffective at preventing abuses of market power. I hope that the courts will ultimately prove me wrong on this, but they move very slowly.

Finally, attacks on the public health insurance system (such as prohibiting Medicare from bargaining with pharmaceutical makers over prescription drug pricing) and on the CFPB are attempts to prevent government from becoming a collective agent for consumers and helping level the playing field, either by bargaining for consumers with prescription drug prices or from simply ensuring that consumers have adequate information about financial products to make informed, responsible decisions.  

There might be other items to add to this list (and please feel free to note so in the comments), but to me, it paints a disturbing picture of a concerted anti-consumer agenda.

There are distinct constituencies for each of these issues, but I think it's important to recognize that there's a larger strategic move going on here. I'm not entirely comfortable with branding this move as "anti-consumer," but am doing so for lack of a better label. The old standby categories of capital vs. labor don't do the trick. I'd love to hear any thoughts on how better to frame the issue.  

Comments

Adam, I'm sure you're familiar with Simon Johnson and his article "The Quiet Coup" describing the rise of oligarchs in the U.S., but maybe some readers aren't:
http://www.endgame.org/quietcoup.htm

Another figure is Bill Black, who has used the term "criminogenic" to describe leadership in the banking industry:
http://www.pbs.org/moyers/journal/04232010/watch.html

We also hear the terms "crony capitalism" and "regulatory capture" bandied about. What all of these terms share is a sense of corruption of process, of a propagandized pseudo-discourse dominated by big money in which powerful private interests have merged with public institutions. To me, it feels like a pathology. Bob Lawless's posting of today's Dilbert below captures part of the essence of this sense of pathology.

As someone who also respects jurisprudence and our very flawed and human judicial system, I don't want to "throw the baby out with the bath water" -- e.g., corporation as ingenious innovation -- and I'm very impatient with warmed-over Marxism emerging as the strident voice of leftist activism. It's a tired and, frankly, self-parodying paradigm. Just as bad as Chicago School law & econ/efficient market hypothesis nonsense.

The analysis should be more along the lines of starting by identifying The Good. It's actually a completely terrifying question in 2011. Nobody but sci-fi writers and crackpots want to do that heavy lifting. What is The Good? Transferring human sentience into inanimate objects as in Cory Doctorow's short story "I, Rowboat" or ushering in an age of glorious bio engineering anarchy with do-it-yourself genetic mods? Building a space ark to get us off this doomed rock? Achieving a human hive mind?

What is The Good and what social balance will get us there -- and why? What's the vision for the future -- making a nice living and retiring to Boca or something larger? Because corporations can be great tools for achieving a sci-fi neat-o keen future, but right now they're run by tools who seem... pathological.

If I had to frame our current problem I'd say it's creating a healthy social ethos to rally around and guide us. Liberals got nothin' right now.

I think the Citizens United case just increased awareness of a problem that's been growing worse for years, if not decades. Dahlia Lithwick, at Slate.com, has pointed out many cases over the years where the conservative wing of the court has narrowed access to the courts for ordinary people. Indeed, the Lily Ledbetter case was another very visible one. In that case the court had to really torture the language of the legislation to deny her the right to sue. The subsequent bill in Congress only clarified language which should have been understood in the first place. The thing is, Scalia, Alito, Roberts, and Thomas are almost gleeful in misrepresenting the evidence they've seen to issue oppressive decisions against common people.

Citizens United is an organization speech case, not solely a corporate speech case. It is a union speech case as much as a corporate speech case. It treats unions and corporations the same. Indeed it treats consumer organizations and corporations the same.

Unions are anti-consumer because they drive up costs and thus prices and reduce efficiency of production and delivery of goods and services. As one learns in labor law, they are per se violations of antitrust law that are specifically exempted by a sister statute. At the margin, they deter production altogether. Which is why we have section 1113 in the Code and why so many unionized companies have run through chap 11. You may like unions for political or distributional or nostalgic reasons but there is no plausible case to correlate unions' and consumers' interests.

Otherwise I do agree with your list.

You might also add the corporate attack on the information commons to your list. It's a sockdolager: copyright, patent, trademark, digital rights management, privatization of public information, etc. (There is no reason the IRS shouldn't produce mass-market tax-prep software, or NOAA shouldn't run a weather website.)

Uhhh. Union laborers ARE consumers! If they make less they buy less. They pay more for health care insurance (also exempt from anti-Trust laws) the less they consume! They make more, save more... they take vacations...you know like back in the day...Remember those days? They consume without going bankrupt; only have one car garages..wife stays home... yada yada yada.. Attack their pensions/ their collective bargaining for better wages and benefits...you encourage them to take on debt.

At the risk of stepping into whatever deviation you might consider this to be, I think what we're seeing now is pervasive rent-seeking, advanced where possible by buying legislation that protects particular forms of it and, of course, by consolidating market power.

It's sometimes what is meant in the business press by "pricing power." Not always-- there are situations where individual firms can legitimately make price levels stick-- but quite often what the business press means by "pricing power" is something that's good for profitability but something that individual reporters would complain bitterly about off-camera when used on them by companies they buy stuff from.

Thus we have the typical pattern of cell-phone contracts and cable pricing. Or, in another area, utility price hikes-- you have to have heat, after all; this is intimately linked to the move to privatize publicly-owned utilities, as in Wisconsin right now. Or increases in turnpike tolls (user fees being imposed in order to make up for tax shortfalls, without arguing about incidence); also not unconnected with moves in several states to privatize toll roads. Etc.

The basic idea seems to be to raise prices of things people must have or are locked into, and/or to turn away from a discrete-transaction model toward creation of revenue streams that can't be reduced or canceled easily. I suppose that stretches classically-defined "rent-seeking" a little, but the underlying idea is essentially the same. The vacuum cleaner nozzle gets affixed to the customer's bank account (automatic payment is preferred) and/or prices inevitably rise.

How it happened is complicated, but it's been spreading as a business model. And it isn't new. It's basically what the East India Company had back in 1773-- immense business advantages gained through special legal treatment it was granted because of its political importance. (I sometimes wonder how it would play out in a corporate boardroom if I presented that plan with the names suitably changed.)

In the more recent period, I think this development is ultimately derived from the pattern of modern big business, in which the goal is to set prices that meet internal needs of the firm rather than letting the market set them or basing them on factor costs (Chandler, Visible Hand). Of course complicated sets of other factors supervene, but that seems as good a place to start as any.

There is an upside-down version of this kind of rent-seeking ala Walmart, monopoly/oligopsony situations which hurt supplier firms (and consumers too, in indirect ways). But that's taking us in a different direction.

Re: "In the more recent period, I think this development is ultimately derived from the pattern of modern big business, in which the goal is to set prices that meet internal needs of the firm rather than letting the market set them or basing them on factor costs (Chandler, Visible Hand). Of course complicated sets of other factors supervene, but that seems as good a place to start as any."

I agree with you completely. I think that is similar to what they call fiduciary duty. It basically requires the 'fiduciary' [also a noun] to make decisions strictly on the basis of how the math adds up. Nothing else can be included in their thinking. It is very dangerous to the people within the context of the decisions being made.

For example: A fiduciary of a pension fund might invest in commodities for its seniors, without considering the unintended consequences that unnecessarily higher oil prices and food prices, fabric prices etc. will have on those same people for whom he/she has fiduciary duty.

If they were allowed to factor in the bigger picture/long term consequences of their behavior rather than forced not to... we would a have a more organic functioning of the financial system. Of course that is only one part of it,, but IMO it's an underlying factor.

I'm pretty sure in the old days, bank/business people had to take into consideration the 'context' of their actions. It seems TBTF took away the need for that.

One of these things is not like the others; and that's Citizen United.

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