There’s a myth — promoted by vested interests — that the United States is a free market economy.
Don’t believe it. Even in the smallest of transactions, monopoly power still rules, dutifully skimming its unearned share.
Competition, of course, usually forces prices lower. But for payment networks like Visa and MasterCard, competition in the card business is more about winning over banks that actually issue the cards than consumers who use them. Visa and MasterCard set the fees that merchants must pay the cardholder’s bank. And higher fees mean higher profits for banks, even if it means that merchants shift the cost to consumers.
Seizing on this odd twist, Visa enticed banks to embrace signature debit — the higher-priced method of handling debit cards — and turned over the fees to banks as an incentive to issue more Visa cards. At least initially, MasterCard and other rivals promoted PIN debit instead.
As debit cards became the preferred plastic in American wallets, Visa has turned its attention to PIN debit too and increased its market share even more. And it has succeeded — not by lowering the fees that merchants pay, but often by pushing them up, making its bank customers happier.
In an effort to catch up, MasterCard and other rivals eventually raised fees on debit cards too, sometimes higher than Visa, to try to woo bank customers back.
“What we witnessed was truly a perverse form of competition,” said Ronald Congemi, the former chief executive of Star Systems, one of the regional PIN-based networks that has struggled to compete with Visa. “They competed on the basis of raising prices. What other industry do you know that gets away with that?”
As an old friend of mine wrote,
The present conditions of business cannot be accepted as satisfactory. There are too many who do not prosper enough, and of the few who prosper greatly there are certainly some whose prosperity does not mean well for the country. … [W]e heartily approve the prosperity, no matter how great, of any man, if it comes as an incident to rendering service to the community; but we wish to shape conditions so that a greater number of the small men who are decent, industrious and energetic shall be able to succeed, and so that the big man who is dishonest shall not be allowed to succeed at all. …
Wherever in any business the prosperity of the business man is obtained by lowering the wages of his workmen and charging an excessive price to the consumers we wish to interfere and stop such practices. We will not submit to that kind of prosperity any more than we will submit to prosperity obtained by swindling investors or getting unfair advantages over business rivals. …
It is utterly hopeless to attempt to control the trusts merely by Antitrust Law, or by any law the same in principle, no matter what the modifications may be in detail. In the first place, these great corporations cannot possibly be controlled merely by a succession of lawsuits. The administrative branch of the Government must exercise such control.
Theodore Roosevelt said those words ninety-eight years ago. He was right then and is right today.
But these are different times; we can’t rely on the administrative branch of the Government to exercise control, even when it claims it will.
The process had only just started in Teddy Roosevelt’s day:
The first federal regulatory agency, the Interstate Commerce Commission, was set up to regulate railroad freight rates in the 1880s. Soon thereafter, Richard Olney, a prominent railroad lawyer, came to Washington to serve as Grover Cleveland’s attorney general. Olney’s former boss asked him if he would help kill off the hated ICC. Olney’s reply, handed down at the very dawn of Big Government, should be regarded as an urtext of the regulatory state:
"The Commission . . . is, or can be made, of great use to the railroads. It satisfies the popular clamor for a government supervision of the railroads, at the same time that that supervision is almost entirely nominal. Further, the older such a commission gets to be, the more inclined it will be found to take the business and railroad view of things. . . . The part of wisdom is not to destroy the Commission, but to utilize it."
Today, regulatory capture infects — literally infects — every aspect of our lives.
Officials at the United States Department of Agriculture endorsed the company’s ammonia treatment, and have said it destroys E. coli “to an undetectable level.” They decided it was so effective that in 2007, when the department began routine testing of meat used in hamburger sold to the general public, they exempted Beef Products.
With the U.S.D.A.’s stamp of approval, the company’s processed beef has become a mainstay in America’s hamburgers. McDonald’s, Burger King and other fast-food giants use it as a component in ground beef, as do grocery chains. The federal school lunch program used an estimated 5.5 million pounds of the processed beef last year alone.
But government and industry records obtained by The New York Times show that in testing for the school lunch program, E. coli and salmonella pathogens have been found dozens of times in Beef Products meat, challenging claims by the company and the U.S.D.A. about the effectiveness of the treatment. Since 2005, E. coli has been found 3 times and salmonella 48 times, including back-to-back incidents in August in which two 27,000-pound batches were found to be contaminated. The meat was caught before reaching lunch-rooms trays.
The last election has changed matters somewhat, including in terms of Antitrust. But make no mistake: the administrative branch of the Government is loathe to exercise control over the great corporations, and will just as often empower the great corporations against competitors and consumers as it will restrain them.
Thus, the primary method we have to control great corporations — whether to ensure a level playing field for competition or to protect ourselves from personal or financial injury — is "merely a succession of lawsuits."
Yet, a succession of lawsuits barely works to restrain corporate abuse and malfeasance. Consider Visa/Mastercard, which already paid $2 billion for manipulating merchants’ processing fees, yet keep doing it. Jack-in-the-Box was nearly bankrupted by lawsuits following a multi-fatality outbreak of O157:H7 E. coli, yet it’s still around, and E. coli still runs rampant in our food, particularly ground beef.
Today, however, we’re forgotten what Teddy Roosevelt knew a century ago. Today, many of those same vested interests argue that the feeble option of the "mere succession of lawsuits" is too much. That even the involvement of the owners of corporations in corporate affairs is too much. That corporations are people, too, entitled to "speak" in elections just like you or me.
Don’t believe it.