Monday, September 15, 2003

And now, via Charles Kuffner... a new triumph for the efficiency of free enterprise and market based mechanisms:

... every day, consumers sign contracts that contain mandatory-arbitration clauses with insurance companies, investment brokers, car dealers, student-loan and mortgage lenders, or they provide their consent by making purchases with credit cards or by buying a product, experts said. For instance, some computer companies put the clause with the warranty in the box, said Celeste Hammond, a professor at Chicago-based John Marshall Law School and an arbitrator who works with the American Arbitration Association. ...

"When you have mandatory arbitration in consumer agreements, most likely nobody knows they're there," she said. "What consumers don't realize is when you agree to this you cannot go to trial, the arbitrator is not bound to apply a rule of law, that if an arbitrator were to make an incorrect decision there is no appeal," she said.

Also, "usually the arbitrator doesn't give a reason for the decision. There's no rationale, no reasoning, which is what you would get in litigation. So you don't know if the person understood your point."

So much more quick and efficient. And the consumers must see the benefit; otherwise they wouldn't have agreed to the deal. That's the wonderful thing about freedom of contract, right?

Or so some naive libertarians seem to believe, at any rate. What this "analysis" lacks is any regard for the differing positions of the two parties. Large corporations can have hirelings working full time to try to figure out new ways to screw the little guy. The little guy may not even notice until it's too late -- he's too busy trying to pay the rent.

Slightly more sophisticated libertarians will argue that this presumes that no small company will step in to start making money on the untapped market for honesty in business. This is the sort of argument one libertarian email correspondent engaged in when he suggested, in response to a post on the shoddy work of credit reporting agencies (which can make you miserable quicker than the IRS, and screw up more often), that:

Of course, if sufficient numbers of consumers were to get totally fed up with the tyranny of Equifax-type operations, then in a free market, surely some smart entrepreneur would try to tap demand for privacy? Hey Charlie, let's set up in business!

Which, as I've noted before, is flawed several ways. First off, it ignores barriers to entry, which oligopolists in large industries work to create, and which naturally exist anyway in any nontrivial business, in terms of know-how and necessary partnerships, not to mention economies of scale available only to larger businesses. (It's worth noting, once again, that deregulation in several industries has been followed by a wave of consolidation, not a flood of new players into the market). Second, more seriously to my mind, it assumes a notion of rights in which people only get to enjoy those rights that they're able to pay for (as in the "privacy premiums" that seem to be the way we're heading in other spheres anyway).

So, how could this sort of problem be addressed in a free market, minarchist context? Well, a bunch of little guys could contribute to a larger collective organization which could bargain on their behalf to get more equitable deals. If you're a minarchist or anarchist libertarian who thinks that sounds like an attractive vision, congratulations: you have now embraced the syndicalist part of the anarcho-syndicalist program as well as the anarchist part, and may now proudly take your place on the radical left. (Don't expect milquetoast liberals like me to rush to join you, though).

But if the libertarian paradise you like to imagine doesn't include labor unions that makes the ones in, say, France seem tame by comparison, you might wish to reconsider...

More: Verging closer to labor relations, Ampersand provides another worked example of big business versus the little guy, attempting to explain to Will Baude why good bands accept lousy recording contracts:

There are a very limited number of labels who can provide access to a national audience (radio play, nationwide distribution of CDs, etc). There is a virtually unlimited number of young bands full of members who are sick of flipping burgers for a living and who are starving for a chance to reach a nationwide audience. Simple supply and demand would suggest that bands will be willing to accept very lousy terms indeed.

Add to that the realities of the situation. On one side, there's a very wealthy record label, run by smart, business-knowledgeable executives, with its own legal team and decades of experience writing contracts. On the other side is a band of folks desperate not to blow their only chance at making a living creating music instead of flipping burgers, none of whom know anything about contract law, none of whom have any real business experience.

Baude also comes up with the "unmet demand here -- let's start a company!" meme. And as usual, he doesn't get much into the specifics of what's involved, assuming, in effect, that his new startup would somehow magically acquire the distribution networks, connections to radio, marketing know-how, and up-front cash needed to match the capabilities of the major labels. The funny thing is that in music, there actually are small, hungry startups, some of which probably do offer better deals to the bands. They're called indie labels. And the reason that bands are still interested in a major label deal is that indie labels simply can't match the majors in distribution and marketing. So bands that want to get their music heard are stuck with the choice of a lousy major-label deal, or nothing. Don't expect that to change anytime soon; like the rest of media, the major labels have been consolidating over the past few years...

By the way, there's a new flagpole-related folly of the sort that began this line of argument; a veteran in Florida is at risk of losing his house for flying an American flag on a flagpole that violates homeowner's association rules. But that's technically a contract dispute, so he's at least free of the horror of eminent domain...


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