April 29, 2008
What happens when companies are
LEFT TO THEIR OWN DEVICES
Without meaning to scare you—or myself—unnecessarily, our country is being squeezed by a pincer movement that would make General Norman Schwarzkopf proud.
Where to start…
Let’s start at home. If you bought your home in the last several years, you’re watching market values drop, thanks in large part to the subprime mortgage debacle. What if home values keep falling past what you paid for the house? What happens if you need to sell, say to take a job in another city? The falling prices may have erased whatever equity you had in the house, the equity you need to make the down payment on your next house. In fact, the credit crunch may make it impossible for a buyer to get a loan to buy your house at any price, and impossible for you to get a loan to buy your new house in your new city.
If you bought your house a decade or two ago, you may have piled up enough equity to survive the decreased value of the house—unless, that is, you are still paying on a home equity loan you took out to make improvements or pay for college. Or unless you were counting on that equity to buy a condo for when the kids are gone and you don’t need so much house.
Ah yes; the kids. Are they nearing college age? What fraction of today’s tuition will that college savings account cover? A third? A half? What about the rest? College loans? Good luck with that. Lenders are pulling out of the college loan market, even the federally subsidized and guaranteed college loan market.
Then there’s gasoline—soon to be four dollars a gallon. If you commute twenty miles each way to work, and get twenty miles to the gallon, gas alone will run you two grand a year. Of course you could move closer to work—if you could find a buyer for your house, get financing for the new house, afford to buy the new house, and find decent schools, or set aside another ten or twenty grand or kid per year for private schools.
And that doesn’t count the political cost of oil. Why did we go into Iraq instead of countries with dictators as odious as Saddam? Why do we stay there to keep the situation from disintegrating into a Hobbesian all-against-all nightmare? Could it be related to the fact that there’s oil in Iraq?
Maybe the cost of gas would go down if we could mix more ethanol into it; at least the corn for ethanol isn’t controlled by countries not disposed to do us any favors. But we’re already using so much corn-based ethanol that the cost of corn is going up, which means that the cost of soda pop is going up—it’s that high-fructose corn syrup that they sweeten it with–not to mention the cost of corn-fed beef and chicken and milk and cheese from corn-fed dairy cattle. And factor in the cost of transporting all that food from where it’s grown and processed—nowhere near where you live, you can count on that.
I could go on: the sagging dollar; food supplies going down so fast and so far that Costco is limiting quantities—limiting distribution on scarce goods: aka rationing; airlines going bankrupt and/or merging, in either case decreasing competition and increasing fares; the cost of health insurance increasing to a point that employers can’t afford to provide it and low- and moderate income families can’t afford to buy at, at the very same time that the cost of health care has gotten so high that you can’t afford it without insurance.
Is it just a coincidence that the economic and social pincers have tightened so much during a period that corresponds with the conservative control of the federal government?
Well, yes—and no.
It isn’t the government’s fault that China and India are surging and gobbling up all the fossil fuel they can lay their hands on. It isn’t the government’s fault that health care costs so much—medicine can give us longer and healthier lives; who wouldn’t pay whatever it takes or whatever they can afford for another year of a life for a spouse, a child or oneself? The government didn’t offer home loans to people who couldn’t afford them. And the government didn’t increase the cost of providing a college education, a cost that colleges pass on to students and families.
The companies and institutions that did these things did what they are designed to do. They provided goods and services that people wanted, charged the highest prices the market would bear, and reaped the rewards—higher profits, higher dividends for investors, higher salaries for executives. That is what businesses are supposed to do.
So while they were doing what they were supposed to do, what were we—the collective we, the people who vote in elections, or don’t, for officials who make government policy—what were we doing while companies and colleges were pursuing their corporate and institutional interests?
We were leaving them to their own devices. Those devices allowed them to behave in ways that threatened the welfare of their customers; sometimes threatened, in our intricately interconnected economy, the welfare of the rest of us; and even, as in the case of the home-building and mortgage industry, their own survival.
What could we have done? I’m not suggesting that the government—that we, in other words—should have been running the oil and gas industry or the health care industry. I’m not even suggesting that the government should be administering regulatory regimens that control the factors that determine price and availability. We tried that with, among others, the airline and telephone industries. In some ways it wasn’t bad. Remember when you could call up an airline, get a price and buy a ticket? Remember when you could fly without kneecapping yourself? Remember when if something was wrong with your phone service the phone company would fix it? (Boy, the way Glenn Miller played, songs that made the hit parade…those were the days.)
But it didn’t work.* It didn’t work because, as big as the government is, it was hopelessly outmanned and outgunned by the legions of lawyers and accountants companies deployed against their regulators. Companies did what they wanted and reaped the profits that came with their monopoly status, while government regulators nipped at their heels.
The lesson is that choosing products and services and setting prices is not the government’s métier. Companies and the market are good at that. They don’t always, or even usually, pick the best products or set the fairest prices, but, like democracy, they make choices that their constituents and customers are more or less willing to live with.
What is the government’s métier? What is its duty?
To set limits. At what point do individuals need to be protected or rescued from the most extreme consequences of legitimate corporate or institutional actions? At what point does society need to be protected or rescued from corporate or institutional power?
This is not, of course, a new or radical role for government. We have minimum wage laws so that employers will not, in their genetically imprinted zeal to gain an edge on their competition, drive wages to levels below the level of subsistence. We have an FDA so that pharmaceutical companies, in the search of profits and competitive advantage that is part of their DNA, will not subject their customers to risks that they have no way of knowing or understanding until it is too late.
The roots of sensible regulation are deep in our national history, despite what someone might think whose political awareness has developed over the last quarter-century. The FDA was established more than 100 years ago, the minimum wage laws passed exactly seventy years ago this year. Next year Medicare will turn 65.
What has led us away from imposing sensible limits to private economic power? We confided political power in a movement that believes—or pretends to believe, depending on how charitable you are feeling—that companies can be relied upon not only to maximize profits but to limit their pursuit of profit in order to protect us from the ill effects of their headlong pursuit.
In the fable of the frog and the scorpion, a scorpion asks a frog to carry him across a river. Nothing doing, replies the frog; you’ll sting me. The scorpion refuses—it would mean death for them both. The frog relents. Midway across, of course, the scorpion does sting the frog. As they are going down for the third time, the frog asks the scorpion why he engaged in behavior that has destroyed them both. I can’t help it, says the scorpion. It’s my nature. I’m a scorpion.
Scorpions don’t deserve the bad rap they get. They serve a useful purpose. They’re predators; it’s their niche, their nature. But we are seriously misguided if we depend on them not only to do what nature intended them to do but to protect us from the ill effects of their activities.