Consumers Can’t Choose Not to Do Business

One argument free market fundamentalists use often is that if you don’t like how a company does business, just don’t do business with them, go to a better company, and the market will get rid of bad companies. So, for example, if you don’t like the way your credit card company is raising arbitrary fees and interest rates, well, find another credit card company.

A good idea. If, of course, there was a free market. With credit cards, the terms tend to be pretty universal. If your credit rating is X, and you have Y assets, credit card companies will generally all treat you the same way. One may be marginally better than another, but it is marginal. They make more money by all engaging in the same practices which increase fees and interest than by engaging in price wars, and they understand that

Same thing with telecom service. If there are 3 providers, and they all provide about equivalent services, then there isn’t a free market.

In many rural markets for health insurance, one provider may control 90% of the market, and in many others two or three controlling the majority is very common. Nor is their much difference between their offerings at any given price point (or their customer service/denial rates, etc…) even when you have multiple “options”.

And since doing without a credit card is actually very difficult (I did it for years, I know what I’m speaking of—I invite you to travel without one one day to see what I mean) and so is doing with phone or internet service, well, you’ve got little choice.

In fact, what the US has in many industries are largely unregulated oligopolies, because the regulators mostly don’t bother.

I’m a big believer in free markets, myself. I’d love for more of them to exist. But it is basic economic theory (and something Adam Smith understood very well) that the first thing people do when they win the market is try and make sure there isn’t a market. The best profits are monopoly or oligopoly profits.

Free market mechanisms by themselves cannot ensure the continued existence of free markets. Government is needed, but so are the proper mores. When John Kenneth Galbraith, in the post war period, looked into why executives didn’t pay themselves a lot more (they could have) he came to the conclusion that it was essentially a cultural thing—managers wouldn’t tolerate it, it was against what they believed in.

Their ethics.

Likewise in 19th century America belonging to certain religious groups was a big plus for a merchant. People would go out of their way to do business with you, because they knew it was much more likely you wouldn’t cheat them or price gouge them, that you believed in a fair profit, but only a fair profit. Ethics.

Free market fundamentalisms in the US has done a great deal of damage by claiming the only ethic that matters is greed. The free market is not self regulating, the invisible hand does not always work to the benefit of society as a whole (as Adam Smith well knew), greed is not always good, and free markets naturally tend towards unfree markets in which the choice for consumers is to take what is offered or go without. (If you don’t believe me, take one of the “contracts” given to you by a big firm, and cross out the parts you disagree with, and write in your own wording. “Negotiate” with them. Let me know how it works out.)

Free markets are grand things. Every once in a while they even exist.