Saturday, October 27, 2007

Predatory Business - When Capitalism Fails Consumers

I've posted about predatory business practices before, here. With the sub-prime loan scandal - and it is a scandal - in full swing, my concern seems to be justified - echoed by media and financial pundits across the globe. That's because in previous financial scandals and crises, there has been a single or very few institutions involved. Central bankers and regulators could deal with that kind of scenario. Even the fabled Savings & Loan meltdown decades ago involved a single category of institutions and was more easily addressed than the current economic imbroglio - which is reaching out and touching many. No, we're in for some serious grief behind this busted bubble. And it's all because business got way greedy, and herd mentality took over.

What's it really going to cost us all? We're just getting a sense of that now, and it is a staggering toll. Everybody needs to pay attention. There are, of course, the homeowners and speculators that will loose their properties and a hefty chunk of their worth. But there are many cities, counties and states that rely on property- and development-based tax revenues that will suffer. And when our governments suffer, ultimately we suffer even more as vital services are pared to the bone or eliminated completely. I should know. The county library system where I live in Jackson County, Oregon shut down entirely for six months before we were bailed out by a pittance from the federal government. Now the libraries are open half-time. Law enforcement and health and human services are also suffering. So the safety and health of our communities and families are at risk. Just when a host of superbugs is coming out of the closet.

The thing is: this kind of behavior is not limited to home loans. Credit card providers are spending billions on ads luring new customers with the promise of plastic wealth. Our regional university, in close-by Ashland, even uses credit cards to dispense student grants and loans. What are we going to do when that bubble bursts? Europe is grappling with the problem of the credit culture right now, read about it here. Then there are the "payday loan" or "quick loan against your vehicle title" outfits that can have clients paying up to 375% interest. That's right. We've understood that this is a bad practice for individuals, businesses and for societies since biblical times. Think about it.

In fact, most states have Usury laws, governing legal rates of interest. A quick search of interest rates legal in the 50 states reveals that the average American state has laws on the books making interest above 10 - 12 percent illegal. But of course, many consumers are paying much higher rates than that on a variety of credit cards and loans. That's because the federal government exempted the banks, commercial loan vendors and savings institutions. Uh huh.

Adding insult to injury, large drug companies have suspended research into many needed drugs - to focus on high-margin lines of pharmaceuticals that must be taken daily for life. With Methecillin-resistant Staph Aureus (MRSA) poised to move from hospitals and institutional settings to our communities at large, we can't get Big Pharma to develop any new antibiotics. There's just no real money in it. And then there are the drug patent remedies that are released long before they are proven definitively to be safe. Can you say Celebrex? We've even put private physicians, our family doctors, on the market-model; and as a result they are becoming focused on higher profit procedures, treatments and specialties. The same is true for our community hospitals, even the non-profits. They can't afford not to compete. Competition focuses on the bottom line, not on comprehensive prevention, quality care and patient needs. Does anybody have the brains, vision and guts to say: The for-profit, market model doesn't work well for every situation. It is not a universal solution or panacea.

In the transportation sector, a little more competition might be in order. Predatory American airlines force customers to put up with delays, cancellations, gate changes and surly and uninformed staff when they travel. I can't think of another industry that I spend almost ten grand a year with that treats me that way. Well, maybe my health insurance provider. I'd sure like to see Singapore Airlines, Emirates, Quantas, Lufthansa or KLM serving more U.S. airports. Anything but United, please.

And lately, there have been a spate of companies charged with endangering consumer health and well-being due to lack of quality control and product assurance. Take large Agri-Business and the frightening recalls of tainted food - both fresh and processed - from grocery shelves in your neighborhood. Or toy companies apologizing and recalling millions of potentially harmful dolls, masks and other children’s' items. How about the recent pet-food contamination scandal? From my point of view, these all constitute predatory business practices.

The shrill advocates of unbridled, unregulated capitalism and corporate globalization have a lot to answer for. As a small businessperson, I count on the market and fair competition for my own income. How radical could I be? I'm a Rotarian. But hey, the purists are wrong (again). We need a hybrid system that promotes the low-end of free enterprise and entrepreneurial development, and controls and regulates the means of production; our vital infrastructure system including transportation and communications; education, and the provision of health care. That's pretty close to the European model of "social democracy," and it works a hell of a lot better than the cut-and-run, exploitative capitalism of Reagan neo-liberalism, the current neo-cons and the Bush Administration. That approach, as recent history clearly demonstrates, is turning us into a third-world country in all but appearance. I'll be fleshing-out that assertion in a future post. So stay tuned for the occasional angry rant. Apologies to my readers who prefer posts on music, travel and pop culture.

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