THE OUTRAGE OF INJURED CITIZENS

Posted on August 15, 2004 by Dave Pollard

This week there were three separate memes in the newsmedia about corporations blaming citizens and consumers for their woes. Put them together and it’s not a pretty picture:

The Customer Isn’t Buying It…
raised eyebrow

The NYT reports that, despite companies’ attempts to get greater and greater bargains for their customers, the customers aren’t buying it — the American Customer Satisfaction Index remains below its levels of a decade ago. And although Seth Godin attributes this to the FedEx phenomenon (get used to an innovation, and eventually you expect it and raise the bar, so it takes more to satisfy you), I’m not so sure. I think the Wisdom of Crowds is at work here. People know that you get what you pay for (if you’re lucky). They’re paying less mainly because they’re making less, thanks to the Wal-Mart Dilemma. The company selling you stuff, meanwhile, is making more profits, despite the fact they’re bringing the stuff in from China now instead of Ohio. So you know full well that what you’re getting for that lower price is lower quality, and that the quality is dropping faster than the price. That quality decline manifests itself in a variety of ways: Flimsier design, less durable materials, less competent assembly, poorer choice, poorer service, less bundling of ‘extras’ (sometimes it seems a modest warranty costs as much as the product these days). Consumer Reports confirms that, with few exceptions, consumers are noticing this, and aren’t happy.

Maybe in the ivory towers of the NYT they can afford to only buy top quality, and so they’re not feeling the quality pinch. But no, gentlemen, consumers aren’t raising their expectations. All they want is a product that works well for a reasonable period of time, a reasonable choice, and efficient service when problems arise. That’s not asking too much. But they aren’t getting it. And thanks to a chronically weak employment economy, union-busting, outsourcing and offshoring, consumers’ pocketbooks are squeezed and their credit cards are maxed out, so they can’t afford to pay very much either. Corporatists have only themselves to blame for both customer dissatisfaction and falling consumer buying power. It’s time they stopped blaming consumers for the problems they themselves have created.

…But Blame Consumers Often Enough And Maybe They’ll Start Believing It…
argument I don’t watch much TV, but do try to catch some of the economic analyses from time to time, especially on networks with less corporate bias like PBS and CBC. Three times in the last month I’ve heard corporate leaders recite almost the identical riff to explain why, despite Bush’s lavish tax giveaway to his wealthiest donors, and near-bankrupting of the US treasury, the economy remains stalled, in a multi-year recession with no end in sight by every standard except the increasingly meaningless GDP numbers.

The outrageous riff says that the problem with the economy is frivolous customer litigation against corporations, and calls on Bush to immediately provide ‘protection’ to corporations against such litigation, in order to improve the economy. The wording of the three corporatist speeches was uncannily similar, and I think it’s improbable that this was just coincidence. Watch out. I think the Bushies have sent the scripts out to selected ideological friends in big corporations, to soften up the public for new, planned legislation. This will be, I predict, the next wave of ‘favours’ for corporatist supporters — having deregulated the corporations from laws that make them act responsibly to citizens, now it’s time to regulate citizens to block them from fighting back. The problem is that the legal profession has opened the door for this, by launching absurd self-serving class actions against corporations (like the famous McDonald’s hot coffee spill) that get all the press, so that the many, many legitimate consumer actions against egregious corporate misconduct are ignored (and if Bush and the corporatists get their way, will no longer be possible). What will the world be like when corporations are truly ‘above the law’? When Adam Smith said over two centuries ago “the real purpose of government is to protect those who run the economy from the outrage of injured citizens”, he was hyperbolizing. If he were living today, he’d just be telling the truth.

…And If That Doesn’t Work, Take The Corporations Out of Public Scrutiny.

goldberg This week the NYT also reports the growing trend of public companies to go private (buy back all their shares and de-list from the stock market). The always-fair Andrew Ross Sorkin resists the temptation to portray this as an attempt to hide unscrupulous behaviour from the public, and instead cites the insatiable demands of public shareholders for perpetual double-digit profit growth in a stagnant and finite economy. Take the company private, the argument goes, and you can start making intelligent long-term decisions and strategies, instead of obsessing over the next quarterly results. You can actually invest in infrastructure and innovation. You can take sensible risks, some of which will pay off big-time.

But think about it. With no other place to put their money, investors have bid the prices of public stocks up to bubble levels — price/earnings ratios almost unprecedented in history. That means if you buy back your shares now you’re paying those investors much more than the shares are really worth. Why would any company do that? It would make far more sense financially for these far-sighted people to start up a new, private company, quietly selling off the inflated public company’s shares to finance it. Eventually the management will have moved all its cash to the new private company, which they’ll own 100%, and the old public company will be the new shareholder-owners’ headache when the stock market bubble bursts.

The only reason I can think of for not following this ‘take the money and run’ strategy is reputation: The old owners will still be blamed for having ‘bailed out’ before the crash, and there will even be questions of impropriety and suggestions they knew the stock was overpriced and deliberately sold it off to unsuspecting suckers (you and me) who were left holding the (empty) bag. That’s what the stock market is all about, of course, but maybe they don’t want too many people to realize that too quickly, and crash the whole economy before the new private business can find its feet. Safer to take your lumps now, pay the inflated price, and start running the private company sensibly. It also solves the stock option expensing problem, which is about to blow up in all our faces. For most, the reduced public scrutiny would be just the icing on the cake.

The third cartoon is from the Sorkin article in the NYT, and is by Stuart Goldberg — I can’t find anything more about him, or anything else he’s done, but this little picture really is worth a thousand words.

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8 Responses to THE OUTRAGE OF INJURED CITIZENS

Life Tenant says:

August 15, 2004 at 11:50

I vaguely remember seeing ads in the paper recently along these lines. Do you recall which corporate “leaders” were mouthing the outrageous fraud that frivolous consumer litigation is what is holding back the American economy? It would be interesting by the way to study the burden that aggressive intellectual property litigation places on innovators, on the distribution of needed medicines and other goods, and on the economy generally.
Doug Alder says:

August 15, 2004 at 18:34

Yes, I’m sure there is some truth in what you say Dave but also there is a basis of truth to the assertion that frivolous lawsuits are hurting Anerican businesses. You only need to do something like buy a metal adder made in the US to see what I mean. I bought a small step stool 2 years ago so I could reach top shelves in my kitchen. As I remember it, that stoll came with no fewer than 5 seperate warninglabels on it warning people to not usde it fr stupid things that would get them hurt. Why were thoswe labels ther? Simple, people had used that tool before to do stupid things like fix faulty wiring while he stool was sitting in water, and got hurt in the process, sued the manufacturer for not warning them against an obviously stupid thing to do, and a jury had awarded them a gazillion dollars in compensation because the manufacturer could afford it (when in reality the suer should have been laughed out of the courtroom). This goes on every day in American courts and as a result the cost of corporate liability insurance has skyrocketed, in some cases putting smaller businesses out of business (even here in Canada – there are, for example, quite a few outdoor guiding/tourism adventure businesses that have gone under because their insurance rose hundreds and in some cases several thousand percent in the last few years even though they had not been sued or made any claims). Doctors in the states are afraid to operate or make any decisions because they could get sued – malpractice insurance is astronomical.This is not to say that doctors do not make mistakes or companies are not negligent, nor that when they are negligent that they should not be held financially accountable, but the situation is patently absurd when companies have to warn peole against doing obviously stupid things in order to forestall (and often not succcessfully) huge liability claims. Those costs and those fears do hinder business. However, this is not something that just started on Bush’s watch and he can not use it as an excuse. This has been going on for decades and will only get worse so long as he gap betwen rich and poor increases, making lawsuits appear to be the quickest and safest way to get rich. Juries have proved only too willling to help them do so.
Dave Pollard says:

August 16, 2004 at 10:51

Subdude: I don’t recall the names — they were in brief clips on the economy on PBS and CBC (one of them was on MoneyLine). Subdude & Doug: I’m the first to agree that lawyers and spurious litigation are ruining America, and since most politicians are lawyers it can only get worse. But the answer isn’t to ban litigation, or to cap it at some arbitrary amount (the recent AT&T phony billing settlement was for $20 million, of which the lawyers got $3 million in cash and the average affected customer $11 in future discounts and rebates). The answer is to change the system to discourage and weed out frivolous actions. And, of course, to improve products and service so fewer lawsuits are needed.
gbreez says:

August 16, 2004 at 12:30

Oh for heaven’s sake, sure the spurious litigation is a pain in the ass as well as expensive for us all, but, what the corps. are doing is way beyond these drops in the big brass bucket! I, for one, am not buying it; any of it. We are being taken on such a ride most of us will never get back, not to mention, figure out where we are going. As a member of the very squeezed majority, I protest! This corporate bad boy crap has me beyond outraged. We need a new term for this, something that mirrors going postal. Anyone have an appropriate phrase for “I am so beyond outraged at what the big corporations, in cahoots with the current administration, are doing to us that I want to take find a way to obliterate them?” Felt lovely to vent, but, does not accomplish much.In my 62 years (in Sept), I have watched it all happen; small stores destroyed by larger stores because the average buyer could afford little but could have more if buying cheaper (in every way) stuff. My Mom bought into it completely. I never did. I tried to explain to her that the tradeoff was a bad one; that she was contributing to the loss of quality and choice. She was never able to see and/or accept this. For myself, I have almost stopped buying altogether; if I do not really need it to survive, screw it. Of course, no one in the “modern mindset” would accept my standard of living or my circumstances at this point; from riches to rags would be an understatement. Outside of continued reliance on electricity for the computer & fridge (I cannot afford an alternative yet), my existence is pretty primal, outhouse included. Suffice it to say, my opinion is: stop. Stop buying into it. Stop buying at the cheapest store. Stop looking at the cheapest solutions.Stop believing all that crap on TV, in the news, in your neighbor’s mouth. Stop buying. Trade whenever possible. Lower your standard of living. Raise your standard of feeling and believing. You may live in a bog and be much closer to god (you may quote me,lol,andwork on your own anagram). I do love this blog site. Many thanks, Dave, for your endlessly open and curious mind; you challenge us all. :)
Dave Pollard says:

August 16, 2004 at 12:44

GB: What a wonderful rant! Thanks for your kind words, your courage, and your wonderful example.
mrG says:

August 16, 2004 at 20:42

I’ve generally found that in any contest of finger pointing, the argument is insoluble only because we mistakenly assume th fingers cannot point the other way.On this issue of falling prices, falling wages, offshoring and consumer expectation, I do think there is an important role to play for the consumer, only it’s not what we of the old school want it to be. The trouble is our penchant for persistance, the tacit assumption that quality means ‘durability‘ — just as we failed to grasp Japanese management and manufacturing practice until it was too late, we are now failing to understand Japanese consumer culture to our peril.In Japan, if it gets a scratch, you replace it.it’s not still good because you betray your countrymen by being frugal and oh so stalwart and stubborn as your ancestors. Our ancestors could afford heirlooms, but today’s world cannot. Today’s world is what the Japanese have been living in for many decades longer (with the odd brief flirtation with our ways, which always results in a radical self-adjustment back to their traditional ways).you see, Japan is an island. A rocky island. An island with precious few resources and a LOT of people. So they have to make due with so little, they do what Bucky Fuller said to do to survive on this Island of Spaceship Earth: Do ever more with less and less until you do everything with nothing.Here’s a concrete example: Sanrio.Sanrio sells nothing, they sell an idea called Giving Gifts and they exemplify that idea with a meta-product called Hello Kitty. We’re talking billions of dollars, millions of jobs, we’re talking lots and lots of happy smiling people and why? Because Sanrio says The secret is in giving gifts without concern over any definitions.Take a trip to Marham Ontario and the Pacific Mall: You find shop after shop after shop, stable as they come (unlike the white-man’s shop-stall of the month malls) and what do they sell? Nothing. They sell nothing. Trinkets, clothes that last a wash or two, bamboo polls and mats, bubble tea, fad trading cards, toys that last 20 minutes — hey we know that world! We call it carnival, that world where people smile despite their troubles, and a world where we don’t blow up our expectations to assume the ferris wheel ride lasts forever.Because it doesn’t, it never does. To believe otherwise is gross delusion. So instead, the Japanese embrace transience, celebrate it, and most of all, they celebrate making each other smile with little transient gifts.Then go back next weekend and buy more.and voilayou have an economy.and you also see that Buddha was right, a great deal of suffering comes from attachement, but that’s another story :)
mrG says:

August 16, 2004 at 20:46

Yes, I know, Pacific Mall is largely _Chinese_ … but the products they trade are still disproportionately Japanese — and China may have a slight cultural edge on understanding this secret of transient hardware.
Dave Pollard says:

August 19, 2004 at 19:38

Gary: I’d be interested in knowing the extent to which the Japanese recycle. They are the masters at making more with less, so making less (garbage) with more (gifts) shouldn’t be hard for them.