Jewish World Review March 13, 2007 / 23 Adar, 5767
Even when companies mess up, consumers still rule
By Steven Greenhut
http://www.JewishWorldReview.com | Peruse any newspaper on any given day, and one will find an endless stream of stories about this nation's ill-functioning and oftentimes corrupt governments. Yet no matter how demonstrably bad the government may be, legislators, and even many regular folks, focus much outrage at the private sector - the only part of society that works relatively efficiently and humanely.
Lately, some corporations - JetBlue, Ford Motor Co., Bank of America and others - have come under scrutiny. Sometimes they deserve it. There's no excuse for, say, an Apple official backdating stock options to give himself an instant windfall. There's no place for fraud and abuse, such as what happened with Enron. But it's bad business to be a bad business. At the end of the day, a wasteful government agency goes back to the trough and gets more taxpayer cash. For companies, if they can't lure enough customers through better prices, products or service, then the bankruptcy attorneys will soon come around.
We see this in our own lives, in the simplest examples. Government agencies are open the hours that suit the agencies. You've got to get your tags from the DMV, so there's no reason for it to be open evenings or Sundays. Don't like your public school? You are free to move somewhere else! I get e-mails daily from people who give their incredibly woeful tales of abuse by various agencies. You can complain to the offending agency (believe me, nothing will happen) or sue, in an egregious case. But there aren't many options other than to take whatever the officials dish out.
Talk some time to someone who has lived through a communist regime, and you'll understand why such people have developed fatalistic attitudes on life. Nothing to do but queue up, put up with the official's surly or unpredictable attitude, and keep your mouth shut – lest you get some powerful person really riled. The bigger we make our government, the more our society will function that way.
A lot of companies have been in the news lately, and much of that news has been bad. For example, JetBlue has taken a beating for having stranded so many of its passengers at John F. Kennedy Airport in New York. Hundreds of passengers were stuck in aircraft on the ground for a nightmarish 10 hours because of the airline's failure to cancel flights during a blizzard. It foolishly chose to stick to its existing schedule, and when the weather didn't clear up, passengers were stuck with the misery.
Immediately after the failure, however, the airline offered a Customers' Bill of Rights that promises to limit the number of hours a passenger can be stuck on a runway and to reimburse stranded customers for their time.
When was the last time the government offered to reimburse you for being stuck on one of its highways or in one of its offices? As the Los Angeles Times reported, "JetBlue Airways Corp., seeking to repair frayed relationships with its customers, said it would offer refunds and flight vouchers to many of its passengers."
Now that the housing market has taken a downturn, for another example, lenders are in the dock for offering many "questionable" loans. As prices fall, people who bought homes with no money down are more likely to walk away from their homes. But the market will self-correct. Standards will tighten up. The same governments that routinely squander money on bad small-business loans and various grants to the undeserving want to further regulate mortgage companies that committed the crime of risking their own money to expand the customer base. No doubt, some of these loans will go belly up, and stockholders will be stuck with the tab. Big deal, those same stockholders reaped the profits, and they will take the fall. That's the way markets work.
As someone who became a homebuyer with little money down, I would hate to see government close off financial choices. Government always seeks to stop, regulate, control, tax and put the kibosh on new ideas and entrepreneurship. Businesses always seek to find new opportunities to make a buck by filling a need, which helps us all earn money, have jobs and buy nice things. They do so by serving customers. Government lives off the leftovers. It scares us into giving it more of our hard-earned resources, and if we refuse, we end up in a government-owned facility, a prison.
I can't understand why so many people are so angry with Bank of America for offering credit cards to people without Social Security numbers. Many conservatives have called for more federal meddling to stop the program, because, obviously, many of the customers for this $500 credit-limit card will be illegal immigrants. The reaction is silly. Let the government control the border, and let the bank look for new customers. That's the natural order of things. Those conservatives who want BofA to enforce U.S. immigration laws are no different from the Clinton-era liberals who wanted banks to report private banking transactions to the feds, as part of the Orwellian "Know Your Customer" legislation. BofA is providing a service and is not hurting a soul in doing so.
Some "bad" news business stories are good-news stories in disguise. As Bloomberg reported, "Ford Motor Co. is in a `meltdown' and may ask the United Auto Workers union to accept reduced pay and benefits." Daimler is thinking about dropping its struggling Chrysler Corp. subsidiary. General Motors continues to close plants. "Rather than build cars to suit customer tastes, U.S. automakers churn out what makes sense for their plants, and then use incentives and rebates to lure buyers," the Wall Street Journal reported this month. "The thirst for revenue to pay for mounting (worker and retiree) health care and pension costs has further encouraged companies to keep plants running regardless of demand."
Fortunately, the article reports that big dealer groups, led by Michael J. Jackson of AutoNation, are pushing the dealers to respond to consumer demands rather than union and management demands. What a novel concept:
Listen to consumers first! Thankfully, there's plenty of overseas competition to convince U.S. automakers to listen to customers. Note: Toyota is setting profit records this year, as Ford endures record losses.
As we see with the Big Three, private companies can be just as thick-headed as public agencies. But the pain of competition will force companies and their unions to accept reality, or they will go under – something that never happens in government.
It's a matter of incentives. In the private sector, the most important player always is the consumer. In the government sector – or the "force-based community," as I jokingly put it – the most important player is the official, who has the power to make you obey him. Don't be misled by the rhetoric of "evil profiteers" vs. "public-spirited" officials. It's the profiteers who must cajole and the officials who are allowed to bully.
Sure, companies seek to maximize their profit. But in the private sector (and I'm not referring to the situation where companies unethically use government to advance their competitive advantage), the only long-term way to increase profit is to appeal to the demanding and fickle consumer, who can always take his business elsewhere. This is such a simple and obvious lesson, it makes me scratch my head at how few policymakers seem to understand it.
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Steven Greenhut is senior editorial writer and columnist for the Orange County Register. Comment by clicking here.
© 2007, The Orange County Register, Distributed by Knight Ridder/Tribune Information Services