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Truth-Free Markets

May 20, 2010
Virgin screwed us, again.  I speak of Virgin Media, of course, as any UK reader might guess.  Having suffered under their hidden fees, overpriced services, and wretched customer service for nine months, and having heard from others about similar experiences, we knew they were likely to.  And that’s why we wanted out; so we made all the arrangements, prepared to switch to a new provider, only to find that Virgin had, without our knowledge, swindled us into an eight-month contract extension, to which we were now bound.  All this despite dedicated research and fine-print reading before we signed up, and ceaseless vigilance afterward (trust me, this is going somewhere--this isn’t just a rant...or, it may be a rant, but it's a thoughtful one).    

Our experience, it seems, is fairly typical.  When we were looking into switching, I found that the company we were planning on switching to was way cheaper than Virgin, so I figured there must be a dark side.  So I researched and found they had received 3.1 out of 5 stars from online reviewers.  Ew, I thought, that’s not very positive.  So I looked at Virgin.  1.4 out of 5 stars.  The third-largest broadband provider in the UK has a 1.4-star rating (and overpriced services!).  What about the largest provider, Talk-Talk?  1.3 stars.  How can this be?  If these companies are so hated by their customers, how could they be so successful?  Surely no one should be able to capture 30% of the UK market share with a 1.3-star rating from existing customers?  Didn’t we all learn in our economics textbooks about how competition will destroy all the companies that provide poor products at bad prices, and that the great companies, that make their customers happy, will automatically rise to the top?  Why isn’t that happening?  Is there some government monopoly?  No, this was a free competitive marketplace.  Why doesn’t competition work?

Everyone must know by now, deep down, that the fairy tale about free markets and competition isn’t true, but for some reason, one still hears it touted all the time.  The marketing pitch for free markets claims that all you need is a free arena for different providers of goods and services to compete to offer consumers the best product at the best price, and then customers will flock to whoever is offering the best product at the best price, and the providers of inferior products will have to give up or improve.  Competition, in this fairy tale, is all about seeing who can best meet the needs of consumers, and the more competition we have, the happier consumers will be.  The free market of competition is an automatic mechanism for separating the sheep from the goats--the bad companies will lose customers, and the good companies will gain them.  
There’s one problem with this lovely little portrait (well, actually there’s several, but I’m only talking about one right now)--it ignores the reality of marketing.  Perhaps this blissful state of affairs existed in someplace long, long ago and far, far, away, but it ceases to operate as soon as marketing enters an economy on any scale.  The simple fact of marketing  makes a lie out all of the free marketeers’ claims about how completely free and uncoerced consumers are.  

Who, in this day and age, is so naive or so arrogant as to claim that they are not manipulated every day by advertising?  Manipulation is the name of the game, and when manipulation fails, deception is called upon, and when deception fails, outright cheating is often the weapon of last resort.  In a marketing economy, competition is not over who has the best products at the best price, but over who has the best marketing.  Whoever has the best marketing strategy, and the most money to push it, wins the competition, even with a markedly inferior product, and whoever has lame marketing, loses, even with a markedly superior product.  In fact, one might even go so far as to say that the inferior product usually wins, because it’s the companies who spend less on providing a good product that have more money left to spend on marketing, while the companies that devote their resources to an outstanding product have little left over to market it.

Now don’t get me wrong--I am not meaning to suggest that the market will destroy every producer of quality goods; there are always enough savvy, picky customers to make a niche market for genuinely quality products that get most of their advertising by word-of mouth.  But the fact remains that the many sectors of the economy are substantially dominated by companies that can make no claim to providing the best product at the best price, but merely the best (or often, the sleaziest) marketing.  

The diehard free-marketeer will reply that, in a free market, consumers should be responsible to learn the truth about what they’re buying, and if they choose to be susceptible to manipulation, that’s their problem.  The obvious objection is--how far does this line of reasoning go?  Do we apply the same rationale to the case of a young girl who is manipulatively seduced into unwanted sex?  But in any case, this is an absurd defence, because all human beings have limited time--it is simply impossible for every working head of household to take the time to thoroughly research the truth about the products he is buying; just as in every other area of life, he has to take some things on trust.  And a truly free economy would be one in which the consumer was free to actually trust what merchants and salesmen told him, so that he can make an informed decision without having to have an exhaustive knowledge of his own.  

Trust, however, is long gone from our economic life, and we are caught in an unending spiral of ever more hardened cynicism--consumers learning to be more and more distrustful of advertisers and salesmen, and marketing gurus becoming ever more devious and stooping ever lower in their attempts to hook the suspicious shopper.  Unfortunately, in this cheerless game of cat and mouse, the marketer generally has the superior resources and determination to win in the end.  

The stale rhetoric of “free” vs. “coerced” exchange, it seems, simply does not apply to the seedy realities of our modern markets, if it ever did, since freedom requires truth, and our economic and political life is dominated by a commitment to hiding the truth and hiding from truth.  

6 comments:

Mr. Littlejohn,

It has been altogether too long!

First, you criticize the free market because it does not taking into consideration marketing. What is your alternative? It seems to me that most arguments in favor of the "free market" are not that it is an optimal end in itself, but rather it is better than the alternatives we have to work with in a sinful society. So - what is your alternative?

Second, you say that Virgin swindled you despite your diligence in reading the fine print and generally staying on top of the situation. How did this swindling happen?

Third, I presume that Virgin Media provides the services that we in America would lump under the broad category of the "cable company." Does anyone actually like their cable company? I thought general disgust with services were just part of the package when anyone deals with a cable company.

Your thoughts?

Cheers,

JRM

May 20, 2010 at 4:51 PM  

Hey Jess,
Thanks for jumping back in. Let me answer your questions in reverse order.

First, sure, no one really likes their cable company, which is why the 3.1 out of 5 stars on the Utility Warehouse shouldn't be taken as an insult to that company. But if a company's overall customer approval rating is 1.4 out of 5 stars, then something, I submit, is wrong with their business model; it is more geared toward roping in new customers than in providing honest and good service to existing ones. And, even if this were true of all cable companies (as, perhaps it is to a sad extent) that still demonstrates my point...clearly the competitive market has not helped consumers, but has enabled a standard of mediocrity and deception to dominate the industry.

Second, well, I wasn't really wanting to share the whole sorry story here, but since you ask, basically they called us up and offered us a special deal for existing customers--free TV added onto our broadband package for no extra charge. We didn't actually have a TV at our current place, but we were likely to at our new place, and they said we could drop the TV whenever we wanted, so we thought we'd give it a try. But first I interrogated the guy on the phone and asked, "Is there any catch? You're seriously just giving us free TV?" I was assured that there really was no catch. But, of course, there was--I was signed onto a new one-year contract effective that day.

May 21, 2010 at 12:00 AM  

Third, as far as alternatives to the free market....Well, first of all, my objections would not be so strong to someone who said, "Yes, this is a messy depraved state of affairs, but this is better than the alternatives in a sinful society." But very often free market ideologues make absurd claims about how this free market really does deliver the goods and make everyone happy, and ensure that quality and low price will win out, etc. And that just ain't the case in this sinful world.
Second, let's apply your kind of rhetoric--"Yes, this is a messy depraved state of affairs, but letting the free market handle it is better than the alternatives in a sinful society"--to a different context, one in which conservative Christians seem to be more morally attuned: “Yes, teen sex is a messy depraved state of affairs, but we live in a sinful world and have to deal with the presence of these desires; so the best thing to do is to let nature take its course and leave people free to choose.” No, this is clearly absurd. Here we recognize the presence of social relations dominated by sinful desires, but we do not conclude, as we do in the realm of economic exchange, that the best way to deal with the presence of these desires is to give them free rein to play out as they would like to. No, we conclude that, because there are sinful desires in this arena, we have to erect moral and institutional barricades to make sure those desires can only come to fruition in disciplined and constructive contexts (and we try to erect those barricades several steps short of overtly sinful acts). The alternative to a free market, then, is a restrained market...restrained in the same way that marriage is a restraint on sex--recognizing that proper restraints have to be in place to create the environment of mutual respect and trust that is necessary for true freedom.
I would prefer, of course, if most of these restraints to the competitive market were moral, cultural, ecclesial restraints, than legal restraints, because the former are more effective in the long run, just as I would prefer such restraints in matters of sex and marriage, rather than a host of bureaucratic sex regulations. But surely, in both cases, there is an important place for laws, and, if the moral, cultural, ecclesial restraints are not being effectively imposed and institutionalized, then law will have to pick up the slack.

So there--that’s a very general answer for what I envision as the “alternative to free markets”--restrained or disciplined markets. I started to go into some concrete details about how to fix the kind of problems that I have used Virgin Media as an example of, but this is already a very long comment, and so I decided I need to save that for a separate post. I can’t promise I’ll make that post right away, as I will have little opportunity when traveling, and I already have a backlog of things I wanted to write, but, I promise I will get to it.

May 21, 2010 at 12:01 AM  

Brad,

Great to hear back from you. I am surprised that in Scotland (is that where you are at?) there are no consumer protection laws applicable to a situation where a consumer is lied to (defrauded) by a salesman. In the states there are a whole raft of laws that would be applicable to punish such fraud upon consumers and give those consumers adequate protection.

I agree with your statement that we are living in a messy state of affairs and that free markets are better than the alternatives. Therefore, I would also like to think that theoretically a better system (one based on the laws of God rather than the law of self interest) could exist and eschatologically will eventually exist.

Concerning the alternative that you propose, I really like where you are going. If moral, cultural and ecclesial restraints are to be used, however, it presupposes that there is moral, cultural and ecclesial agreement on what certain standards should be. Once a culture decides it standards it can easily make laws to facilitate the necessary regulation.

Last summer, while driving across the country I blew my radiator and had to get it fixed in Sioux Falls South Dakota. The gentleman gave me an estimate and since I am a good lawyer I asked for him to print it off so I could have it in writing. To this he was a little taken aback and told me that no one had ever asked him for a written estimate. Evidently, in that small town a culture of trust exists that can get your car fixed for the price they tell you without having to get it in writing. In Washington state, such a price quote would have to be by law (I think) in writing. This is a small example of different standards that are present in different cultures and an example of exactly what you are talking about.

Anyway - I look forward to reading your posts on this in the future. I just think, in the culture that we are currently in, the "free market" is better than a government run market.

Cheers,

JRM

May 21, 2010 at 6:39 PM  

Hey Jess,
Well, yes there are consumer protection laws, but a) it's quite possible that the company, aware of such laws, found a way to stick within the letter of the law while still deceiving us, and b) it takes a great deal of time and effort to enlist the assistance of such laws--companies know this, and that's why they can often get by with these sorts of things.

As far as the bigger-picture stuff:
first, "the free market is better than the alternatives" is not my statement...part of the problem with such a statement, in my mind, is that none of us have sufficient conception of what the alternatives might be to rule them out as we are wont to do. It's as if someone who had only ever tried pears and apples, and no other fruits, insisted that "apples are better than all alternatives, and so we might as well all learn to live with just apples."

As far as your point about the necessity of cultural agreement on standards of goodness, before laws could reflect those standards in the economic realm--you're quite right, and that's why I think that such laws and constraints need to operate, as much as possible, on more local levels (and for that to happen, markets will have to operate on more local levels as well). It is simply impossible for government on the scale that we now know it to genuinely reflect or create cultural and ethical convictions.

So yes, our current free market may well be better than a "government-run market" as we currently experience the government, but there are other kinds of government. Moreover, you have posed the alternatives too starkly. "Government-run" is rather extreme. What about "government-restrained"? Surely, we would all agree that, at least for the time being, markets need to be restrained by law to some extent (e.g., child pornography is not a legitimate arena for the market), and then the debate is about to what extent.

May 27, 2010 at 3:21 PM  

Ha--I love these kinds of blog posts. Give 'em hell!

My response to the gripes about the free market is "fair enough", though you have to admit that sometimes it works pretty dang well (and not in a "better than the alternatives" way--in a "this is awesome in absolute terms" way). For example, the internet is pretty cool--email, search engines, videos, blogs, social networking, all provided for no charge, all provided by the free market. Cell phones are cool too--ten years ago not many people had them, but these days they are cheap and plentiful, even in poorer countries. And that's because there are companies like Nokia pumping out millions of devices a day.

But then on the other hand you have stuff that just never seems to work right, like cable companies. Go figure.

Although, I do have a theory as to why it might make some sense for cable companies to suck customer-satisfaction-wise. The thing is, customer service is extremely costly. It works out to something like hundreds of dollars per call to customer service. So companies like the phone carriers (Verizon, ATT) and cable providers always aim for the minimum amount of customer service they can get away with. If they didn't do this, they would have to raise their prices. So basically it's a tradeoff: if there were a 4 or 5 star cable company, its services would undoubtedly be disproportionately pricier than the alternatives, and they wouldn't stay in business for long.

This, in any case, is my theory: that providing customer satisfaction in some industries is just extremely costly, and not so costly in others.

But it's just a theory--it's probably more likely that Virgin Media and all the other cable companies are a bunch of shysters plain and simple. :)

June 12, 2010 at 6:34 PM  

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