In fact, the attack on consumer choice by the wholesalers isn’t limited to just the Internet. Recently, one of the largest liquor distributorships in the Midwest dispatched armies of lobbyists to the state capitol in Illinois to pass “wholesaler protection” legislation that would make it next to impossible for suppliers to fire their wholesalers for any reason. After spending more than $1 million on what was panned in the media as the worst sort of special interest legislation, the monopoly wholesalers won – but only temporarily. The bill, which was signed into law by Gov. George Ryan in 1999, led to higher prices and created havoc on the marketplace. Consumers and the press were outraged, and a court challenge led to an injunction, still in effect, against its implementation.
It’s an old story. “The resistance which comes from interests threatened by an innovation in the productive process is not likely to die out as long as the capitalist order persists,” wrote the great economist Joseph Schumpeter, quoted by Atkinson. And, as Business Week recently pointed out, in the 1920s, the Horse Association of America “campaigned to limit the use of trucks and automobile parking on public roads.” The difference is that Internet technology threatens nearly every middleman who does not truly add value, not just blacksmiths and buggy-whip makers.
But the real question is not why threatened middlemen squeal, but why politicians heed them. Sure, they have clout, usually in the form of campaign contributions. But don’t consumers have even more clout? They would if they were organized, or if they knew what’s happening to limit their Internet freedoms. But they aren’t organized, and they don’t know.
While the PPI paper is sound, the recommendations it makes to solve the problem are questionable. Their focus – as, I guess, you might expect from an organization of Democrats – is on government action.
PPI wants, first of all, for the Bush administration to create “the position of e-commerce ombudsman to serve as an advocate for e-commerce competitors.” But the last thing e-commerce needs is a new official who’ll build a techno-bureaucracy. Consumer action, not federal action, is what’s needed.
PPI also wants to get the federal authorities to “increase efforts to prevent retailers” from colluding to retaliate against companies that attempt to sell directly to consumers. This is a big problem – Levi Strauss, for example, shut down its e-commerce site in 1999, “mainly because of a backlash from retailers,” writes Atkinson. Certainly, antitrust violations caused by collusion should be punished, but, otherwise, this is another area where government should not play a role. Producers (including the auto manufacturers) are going to have to work out their own compromises with dealer networks.
The think tank also wants to develop “.” No, again! Government licensing of hairdressers, optometrists, plumbers and practically everything else is simply a method for perpetuating cartels of professionals and wannabe professionals – to keep competitors out. Yes, such licensing rules at the state level create barriers to trade on the Internet, but the answer is not federal licensing. The answer is federal laws that prohibit the use of state licensing to restrict interstate commerce on the Internet – as restrictions like the one against radiologists clearly do.
I agree, however, with PPI’s recommendation that the Justice Department and Federal Trade Commission “take a more tolerant position if producers act collectively to sell goods or services online, as long as they are not colluding.” Absolutely. And I would amend that recommendation to say “sell or buy.” Alliances of all sorts are one of the great benefits the New Economy has spawned. Keep them coming.
And the think tank’s call for Congress to consider “national licensing requirements for industries and companies that now need to be licensed by the state” is fine, too – but only as a spotlight on state regulations that ought to be removed. Federal licensing would merely perpetuate many of the cartels of professionals and wannabe professionals that want competitors kept out. The goal ought to be to prohibit the use of state licensing to restrict interstate commerce – as restrictions like the one against radiologists clearly do.
The glare of publicity might energize consumers to organize against the barriers to the Internet disintermediated middlemen try to erect.
A new study by three economists from the National Bureau of Economic Research looked at 2 million referrals from the website Autobytel.com to auto dealers and found that “buyers who use” such a service “save about 2 percent on their average new car purchase.” Not bad: saving $600 on a $30,000 car. But imagine the savings if the Internet could be home, not merely to referral services, but to manufacturers selling direct. Two percent would look puny.
Consumers: get angry and get together.
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All Failure|10.24.11 @ 11:05AM|#
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