Congress must get out of the way of the free market, the author writes. To help free market, bury the hatchet

We all want America’s economy to improve and realize that crony capitalism — where Washington politicians, not free markets, decide who succeeds — is a barrier to prosperous growth. Yet industries still dispatch lobbyists to Capitol Hill to get a legislative or regulatory “fix” when there’s a marketplace dispute. Consider the recent settlement between retailers and payment card companies over fees that merchants pay to accept plastic.

The retail industry has continuously complained about the fees card companies charge them to use a convenient, secure and fast payment network, which has benefited both merchants and consumers.


Retailers a few years ago successfully pushed Congress to slap price controls on these fees through the Durbin Amendment to the Dodd-Frank Wall Street reform bill. The Durbin Amendment, rushed through Congress with no debate, has muddied the marketplace by failing to deliver the promised benefits to consumers and small businesses in the form of lower prices, while increasing profits for the biggest retailers. Even the Federal Reserve Bank and a diverse coalition of groups sounded the warning bell that consumers would most likely face higher costs as a result of this Soviet-style effort to regulate fees.

However, the two sides — retailers and payment card companies — continued to negotiate and recently announced a legal settlement. U.S. merchants got what they had long said they wanted: Debit interchange rates are capped. So merchants can now require minimum and maximum transaction amounts at their points of sale.

Retailers now have the ability to route transactions over whichever network they choose — increasing competition for their business. They also can impose a fee on consumers who pay with plastic. With these key gains, retailers have the power they need to minimize acceptance costs and manage point-of-sale economics in their favor.

One would think this would finally end the multiyear dispute.

Unfortunately, before the ink on the settlement had dried, two major retail trade organizations and some large retailers have rejected it and are now running to their friends on Capitol Hill claiming the deal “didn’t go far enough.” In an act of crony capitalism obesity, they’re back for more.

This brouhaha shows how far we have strayed from the most basic economic principles that created prosperity in America for generations. Washington’s war on the free market, capital investment and financial services must end. Congress must get out of the way.

Dodd-Frank-Durbin exemplifies Capitol Hill’s hostility to the free market. It delivered a hard blow to our financial services industry by making it more difficult for banks, especially the non-giants, to perform their traditional roles. Banks are drowning in new regulations — talk about regulatory waterboarding!

Worse, Dodd-Frank-Durbin created yet another government agency, the Consumer Financial Protection Bureau, to set prices, “settle” disputes and “protect” consumers. No wonder Americans can’t get adequate access to money for their businesses, cars or education.

Washington must allow businesses and industries to settle their disputes on their own. For example, the retailer and payment card industry discord has always been a commercial dispute between two groups of businesses. Litigation among parties doing business together is never a preferred option.

But while this legal process has been slow and expensive — it worked. The parties have found the common ground they need to move forward. Resolving this dispute opens new opportunities to collaborate, which will encourage innovation and improve the value they can offer consumers. Mobile payments, e-commerce, expanding acceptance and security enhancements are just a few of the areas we can advance collectively.

Going forward, the credit card industries will focus their full attention and invest in opportunities like these — which create real value for everyone who makes or receives payments.

At the same time, businesses should resist the temptation to seek legislative advantages that could not be achieved in the marketplace. That process has increased congressional usurpation of free-market functions. It lets Washington become the final arbiter in business disputes — which means today’s victor may find itself on the menu for legislative mischief tomorrow.

No wonder European big government ideologues are smiling: The more businesses plead for favors, the more powerful government gets.

Steve Forbes is president and chief executive officer of Forbes and editor-in-chief of Forbes magazine.