Consumers, Wake Up! Middlemen Are Ripping You Off

For a year now at TechCentralStation.com, we have been warning of a menace we call “the revenge of the middleman.”

The Internet gives consumers the ability to buy directly from producers. That’s one of the great gifts of technology. Go straight to www.palm.com for your Palm Vx. Or go to a retailer, online or otherwise. Decide on the basis of price, convenience, service. The choice is yours.

All should have the opportunity to bypass agents, dealers and retailers – if that’s our wish. These intermediaries can certainly add value to a purchase (by giving us good advice, for example), but if we want to go it alone we shouldn’t find government standing at the side of middleman gatekeepers, ordering consumers to pay a toll in higher prices.

That, however, is exactly what is happening. Middlemen, organized in groups with lobbying skill, are getting laws passed that stop consumers from exercising a right that’s nearly as important as free speech – the right to buy from whom you choose, using new technology that saves money and time.

Just recently, the Progressive Policy Institute -- a Washington think tank affiliated with the Democratic Leadership Council, an organization started by centrist Democrats -- issued a comprehensive policy paper called “The Revenge of the Disintermediated,” laying out some of the most outrageous examples of this phenomenon.

If you’re baffled by the term, Robert D. Atkinson, author of the paper, can help: “Disintermediation can be defined as the reduction or elimination of the role of retailers, distributors, brokers or other middlemen in transactions between the producer and the consumer.”

He goes on with an example: “Consumers could buy books online directly from publishers who would ship the books directly from their printing plants. But even publishers and printers might be disintermediated if authors were to sell ‘e-books’ directly to the consumer, as mystery writer Stephen King has attempted to do.”

Imagine publishers going to their state legislators to bar King from selling his own works online. As crazy as it sounds, that is precisely what other industries are doing. The cost to the consumer, says Atkinson, is $15 billion a year.

We alerted you first to the outrageous example of laws (now in 49 states) that prevent consumers from buying automobiles directly from manufacturers over the Internet. Ford Motor Co. opened a website in Texas that allowed customers to bid on used cars returned to the manufacturer by drivers whose leases were up. The car would be transported from a Ford warehouse to the dealer of the customer’s choice, where it could be test-driven and purchased, with Ford paying the dealer a commission. Good idea, all-around, right?

Unfortunately, the arrangement violated Texas law. Acting on a complaint from dealers, a state official ruled that Ford was “acting in the capacity of a dealer by selling and offering to sell motor vehicles directly to the retail public via the Internet.” That’s illegal in Texas and, now, in nearly every other state. Ford quickly closed the site and took the case to court. But in November of last year, an administrative law judge ordered a $1.7 million fine for the company.

Meanwhile, Arizona, a state that in many other respects has a proud libertarian tradition, recently passed an absurd law that prohibits car manufacturers from selling even insurance, parts and auto-financing over the Internet. This law, too, is being challenged in court, but the damage is being done right now.

The Progressive Policy Institute paper provides more detail on the auto outrage. It also lays out examples in such areas as music, travel, contact lenses and medicine.

New technology, writes Atkinson, allows X-rays and other types of medical imaging to be easily transmitted digitally. So the images of a broken leg in Kansas City can be sent online to a radiology specialist in New York. But “practitioners in some states have pressured legislatures to make it illegal for radiologists not licensed in the state where the image is taken to read the image and make the diagnosis. In fact, the medical profession in many states is attempting to pass laws restricting the practice of all forms of telemedicine.”

For wine lovers, the Internet seems the perfect technology. Scores of small, remote American wineries, which in the past could not afford to market their specialties, can develop websites with all sorts of descriptive material and simple ordering forms. But, again, the middlemen won’t let them.

Recently, the Wine Wholesalers Association successfully lobbied Congress to pass a law that lets them sue out-of-state wineries that ship directly to consumers in states that have prohibited sales of wine via the Internet. Atkinson says that 30 states now have such prohibitions, and in six of them Internet sales of wine are a felony. Why? One reason is that the disintermediaries in the business of selling alcohol are especially powerful politically.