Pretending to protect consumers in order to make sure that powerful incumbents can side-step free market competition is an American way of life. Even where there is no discernible benefit to the health and safety of consumers, regulatory boards tied to specific industries move from "protector of the public" to "protector of the powerful incumbents" all too often. It might happen when the regulators themselves, once employed by the companies they regulate where they developed their expertise, now move into the regulatory commissions. Or you might find that those who have big campaign contribution coffers somehow "convince" legislatures (very much including Congress), city council boards, various elected districts, etc. to support tilting the playing fields completely in favor of the market-incumbents.
Here are three current examples:
Prescription Drugs: "For almost 15 years big drug companies have vigorously lobbied Congress and the federal government to stop Americans from buying foreign medicines. As part of that lobbying, they have made it seem as if all medications purchased from Canada and other international sources are the same as those that come from websites that sell counterfeit drugs. Even the F.D.A. has made that suggestion. In testimony in February before a House subcommittee hearing to explore the public health threat of counterfeit drugs, Howard R. Sklamberg, a deputy commissioner at the F.D.A., said that foreign unapproved drugs posed the same health risks as counterfeit drugs.
"That assertion is just not true and will scare lawmakers and consumers into believing that all imported drugs bought online are dangerous. The ‘unapproved’ drugs are often the exact same ones sold here. Or they’re different brands, or generic versions of domestically sold drugs. Thus, many foreign unapproved drugs — specifically those ordered from licensed pharmacies — are almost always going to be safe and effective, like their United States counterparts, whereas a counterfeit drug will almost always be dangerous…
"Destroying real prescription drugs that patients have ordered, drugs that they need, is not going to protect people. It will hurt them. Brand-name drugs that are still on patent in the United States are often 80 percent less expensive at reputable international online pharmacies. Without online access, more Americans will go without prescribed medicines.
"There are no reported examples of Americans dying by taking real, but F.D.A.-unapproved, medication bought online from a foreign pharmacy that requires valid prescriptions. This is after tens of millions of prescriptions have been filled online and internationally over the past 15 or so years, since online pharmacies were created." Gabriel Levitt writing for the March 25th New York Times.
Car Dealerships: "In one important respect… Tesla stands on the side of the free-market angels: The company’s business plan calls for selling vehicles directly to consumers, rather than through auto dealers — a major challenge to the dealers’ costly, outmoded monopoly on new-car sales in the United States.
"State laws generally prohibit anyone but a licensed franchisee from selling new cars. A 2000 report by a Goldman Sachs analyst estimated that direct sales would save consumers $2,225 per new car, assuming an average vehicle price of $26,000.
"So far, Tesla’s effort has met with mixed success. It has opened stores in Minnesota, Massachusetts and Washington but struck out in Texas and Arizona. Virginia rebuffed Tesla’s plan for an outlet in Tysons Corner last year. Tesla sued but withdrew the lawsuit in return for a chance to apply for a dealership license…
"The dealer-based distributional system divides the United States into sales "territories," each one allocated to a dealer, on the theory that a protected market compensates for the risk of investing in a brick-and-mortar building and holding a large inventory of cars.
"Long ago, this business model might have made sense, but today technology takes much of the risk out of inventory management — and enables consumers to understand their choices without ‘help’ from a commissioned salesman. In fact, the Consumer Federation of America reported in 2013 that ‘[m]isrepresentation in advertising or sales of new and used cars, lemons, faulty repairs, leasing and towing disputes’ was the top source of consumer complaints to state officials, as it had been in previous years.
"The dealer-based system was obsolescent even before the Internet, which is why Detroit automakers tried to streamline it decades ago, only to be thwarted when dealers turned to state legislatures for protection." Washington Post, March 12th. I’m just thinking where "car salesperson" sits on the honesty-expectation scale of most consumers!
Uber vs. Taxi Cab Commissions: Despite carefully GPS, computer-linked drivers, who provide flat rate quotes for "to and from" single car transportation, no matter that the consumer has a photograph of the driver and a very specific tracking on arrival time delivered on their smart phone, and despite the fact that in many cities regulators have failed to issue new "medallions" for additional taxis for decades, bidding up the cost of the medallion transfers, creating absurd barriers to entry for new taxi entrepreneurs in the market with severe shortages of available cabs, regulation commissions do not like anyone rocking their regulatory monopoly.
The smart phone/Web-based Uber, an enterprise where consumers can open accounts (where transactions are actually processed – not in the car) and access efficient single-car taxi-like services cheaply, predictably and efficiently. People love the service, but issues like "accident liability" and "safety inspections and licenses" are high on the overall list of concerns. For anyone who ever been in a NYC cab, the notion that cabs in NYC are clean and safe vaporizes in seconds.
"Uber and its abundance of imitators represent a new stage for technology companies. These businesses directly insert themselves into the physical world, arranging on-demand transportation, meals or even clean laundry in exchange for a sweet commission. Unlike Facebook or Twitter, which thrive in the safe confines of cyberspace, these start-ups live on the streets.
"That is a much messier place. Regulators, courts and city halls are struggling to define Uber. Is it a taxi company or a technology platform? Are the drivers, who often use their own vehicles, employees, as some are arguing in court, or ‘partners’ — that is, freelancers — as Uber maintains?
"Uber compares itself to the auction site eBay, connecting a buyer and seller but not liable for what happens between them. Regulating Uber, the company told the California Public Utilities Commission, would stifle innovation." NY Times, January 26th.
While Uber does background checks and requires insurance, some insurance companies have balked claiming that traditional car insurance policies specifically exclude commercial enterprises. Local cab companies are livid at these tech-driven alternatives: "The Western Washington Taxi Cab Operators Association is suing Uber, the app-based transportation company, for operating illegally in Seattle and King County… The lawsuit, filed in King County Superior Court, claims that Uber’s service has violated city, county and state laws, and ‘engages in an unlawful and deceptive business practice which harms the economic interests of taxicab drivers.’" GeekWire.com, March 24th.
Regulatory commissions have varied in their response from outright banning of Uber to a limitation on the number of Uber operatives allowed… with a look-back scheduled sometime in the distant future. Some commissions want to phase in the "new" over time in a less-economic-impactful manner. But is this a disruptive technology whose time has come that cannot be stopped? "The San Francisco Cab Drivers Association (SFCDA), an association for registered taxi drivers that promotes fair working conditions and business practice, reports that one-third of the 8,500 or so taxi drivers in San Francisco -- over 2,800 -- have ditched driving a registered cab in the last 12 months to drive for a private transportation startup like Uber, Lyft, or Sidecar instead.
"How have these startups been able to take so many drivers so quickly? Passengers more and more appear to appreciate these startups' superior dispatch technology, ease of use, and competitive pricing. (To wit, leaked information this December proved just how well Uber is doing overall: $1 billion annually in gross bookings, roughly $213 million a year in revenues, and growing.) Indeed, the lack of a central taxi dispatch has long meant some taxis are never connected with some passengers, a frustrating scenario businesses like Uber sidestep with smartphone apps that track the car's location on a virtual map and an ETA. Meanwhile pricing is becoming cutthroat: Late last week, Uber slashed Uber X prices again in 16 cities, including San Francisco, by up to 34%, claiming fare prices cheaper than traditional cabs." Fortune.com, January 15th. How do you feel about these new business models? Do the incumbents need protection? How big does an incumbent have to be to stop change?
I’m Peter Dekom, and everywhere you look the "that’s the way we’ve always done it" explanation rings increasingly hollow and seems indefensible.
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