FREE-MARKET FAILURES
Automobile Safety: The auto industry fought for decades
to prevent mandatory seat-belts, air-bags and other critical safety features.
Why? Because adding such life-saving devices cut into profits.
Auto Mechanics: It's almost a certainty: the final bill will
exceed the original estimate. Even worse: mechanics who make unnecessary
repairs.
The Battle of the Taxi-Cabs: You want the lowest fare possible,
but your cabbie wants the highest. As a result, the shortest distance between
two points is often a crooked line.
The Cable Industry: After deregulation in 1984, cable prices
soared, quality of programming plummeted, and service providers began selling
their channels in indivisible blocs to prevent subscribers from voting
with their dollars. From 1986 to 1990, the cost of basic service rose 56
percent -- twice the rate of inflation.
The Corporate Special Interest System: So who's bribing our
Congress? In 1992, corporations formed 67 percent of all PACs, and they
donated 79 percent of all contributions to political parties. This poses
a dilemma to believers in the invisible hand: how do you condemn today's
government without condemning the free market that controls it? A better
alternative: democracy.
Corporate Welfare: Private enterprise is quite adept at feeding
at the public trough, despite its professed antagonism for government.
One of the most famous examples is the Wool and Mohair Lobby, which receives
$100 million a year for a product the Pentagon no longer needs. Estimates
of corporate welfare run from $85 billion to $800 billion a year.
The Cuyahoga River: This Ohio river was so polluted by industrial
waste that it caught fire three times. Government stepped in and
ordered a $1.5 billion cleanup. Today, the river is clean.
The Drug Industry: According to Dr. George Silver, a professor
at the Yale University School of Medicine, about 22 percent of the 6 billion
doses of antibiotic medicine each year are overprescribed, resulting in
2,000 to 10,000 unnecessary deaths annually.
The Exploding Ford Pinto: Ford knew for years that it would
cost only $11 per Pinto to correct defective gas tanks that exploded upon
impact. The company decided it was cheaper to let its customers burn and
pay out damages to victims or their families instead. (More)
The Exxon-Valdez Oil Spill: The oil industry has long
fought to defeat laws requiring double-hulled oil tankers. And what few
oil-spill cleanup measures existed at Prince William Sound were ones that
legislators had mandated. These measures failed miserably when the single-hulled
Exxon Valdez ran aground and spilled 11 million gallons of oil into
Alaska's most scenic waters.
Global Warming: Despite the fact that the National Academy of
Sciences is "90 percent sure" that global warming is occurring,
the fossil fuel industry is resisting all change. It has even formed the
"Global Climate Coalition," a public relations group that attempts
to convince the public that global warming is a myth.
Insurance Companies: This industry is famous for battling its
own customers in court to avoid paying awards. It has shut out patients
with pre-existing conditions, allowing them to die to preserve profits.
It has reduced hospital stays for mothers giving birth to 24 hours ("drive-by
deliveries") to cut coverage costs.
Jack-in-the-Box: In 1993, E. coli poisoning from undercooked hamburgers
killed three Seattle children and sickened hundreds of others. It is estimated
that foodborne illness affects anywhere from 6.5 million up to 81 million people a
year. About 9,000 die from E. coli and salmonella alone. Yet the food industry has
heavily lobbied Congress to deregulate and relax federal food inspection standards.
Love Canal: Between 1942 and 1954, the Hooker
Chemical and Plastics Corporation dumped 22,000 tons of 248 assorted chemicals
in and around Love Canal. Despite claims to the contrary, Hooker neither
adequately disposed of the chemicals nor fully warned property buyers of
the risks. After a sharp rise in cancer rates and birth deformities, President
Carter declared Love Canal a federal disaster area and over 1,000 households
were permanently evacuated from their homes. (More)
McDonald's: For years, London Greenpeace distributed a brochure
criticizing McDonald's role in rainforest destruction, labor exploitation,
animal abuses, unhealthy food and child manipulation. McDonald's first infiltrated
the group with spies, then attempted to censor the protesters by suing them in court for libel.
The case became the longest in British libel history when the defendents put
up a surprisingly strong defense. The case received international attention and
became a major public relations disaster for McDonald's when their own witnesses
actually confirmed the brochure's criticisms. (See McSpotlight)
The Media (Part 1): The primary goal of the media is to make
money, not educate. Thus, news programs attempt to attract viewers by titillating
them with controversy, scandal, sensationalism, sex, violence and demagoguery.
The trend towards "punch" journalism has reduced the average
sound bite from 42 seconds in 1968 to 8 seconds in 1992.
The Media (Part 2): The media is being increasingly monopolized
by corporate owners, and they depend on corporations for their advertising
dollars. Not surprisingly, the media is virtually uncritical of corporate America.
In 1989, the three major networks devoted only 2.3 percent of the news
to worker's issues -- like workplace safety, child care and income disparity
-- despite the fact that workers constitute the largest share of their
audience.
The Minimum Wage: Business owners say market forces should determine
entry-level wages, not the government. But the job market does not operate
by the usual laws of supply and demand. The economy is kept at a 6 percent
unemployment rate (the "natural rate of unemployment") for reasons
beneficial to business. Because there are more workers than jobs, it's
an employer's market, and employers can therefore force entry-level wages
below the poverty level. (More)
Monopolies: In unregulated economies, relentless competition
first leads to a wave of business failures, followed by the rise of monopolies.
Economists condemn monopolies for their price-gouging, low-quality products,
inefficiency and abuses of power.
New Coke: Everyone remembers Coca-Cola's disastrous experiment
with New Coke, and it's hasty return to "Coke Classic." What
most people don't know is that the outraged public got another poke in
the eye by a recalcitrant Coke management, in that they actually gave so-called
"Coke Classic" a higher fructose content. Truly, the customer is king…
Ozone Depletion: It took growing scientific warnings from 1975
to 1986 before Dupont even conceded that CFCs were responsible for destroying
the ozone layer. Since then, it has dragged its feet coming to a full ban
on ozone-depleting chemicals.
Path Dependency: Economists have chronicled hundreds of examples
where an accident of history put the economy on a path from which it is
almost impossible to diverge, even though better paths show up. Example
include the inferior QWERTY typewriter keyboard, the gasoline engine and
the VHS video system. (More)
Planned Obsolescence: Lifetime light bulbs, run-free nylons,
durable heels for tennis shoes and long-life answering machines were all
invented a long time ago. Businesses do not market them because they would
go out of business after the initial flurry of sales. Even small-time entrepreneurs
willing to make money for a short time find it difficult to break into these
markets, because the majors can force them out with lawsuits, market-manipulations,
artificially low prices, lobbying, etc.
Pollution: This is probably the most famous example of free
market failure. Usually, dumping pollution is cheaper than treating it.
But businesses conduct slick advertising campaigns to convince the public
that they are stalwart defenders of the environment. Environmentalists
call these P.R. efforts "ecopornography."
The Prisoner's Dilemma: This is an irony that occurs frequently in life.
Two individuals are faced with the opportunity to cooperate to acheive a good result.
However, following their own self-interest with impeccable logic, they shun
cooperation and come to a worse result. A strong refutation to the invisible
hand. For details, see More.
Recessions and Depressions: Recessions have been a recurring
feature of the American economy for centuries, even during the era of laissez-faire,
when government left the economy almost entirely alone. In the 19th
and early 20th centuries, eight American recessions worsened
into depressions. (For the cure to this free-market malady, see "Government
Success Stories.")
The San Francisco Bay Bridge: This is a well-known failure of
the invisible hand. Commuters, following their own individual best interests,
contribute to a traffic jam that is far worse than if they followed a group-based
solution. The details can be found in More.
Savings and Loan Bail-Out: After the Savings & Loan industry
was deregulated in 1982, fraud and abuse quickly ran rampant. After 650
S&Ls went under, taxpayers discovered they were left holding a $500
billion bill.
Silicon Breast Implants: Dow Corning and other corporations
knew that silicon breast implants were leaky when they marketed them. In
1994, these manufacturers agreed to pay $4.75 billion to 60,000 stricken
women - although that sum may rise pending further court action.
The Superfund: After the Love Canal disaster, Congress created
the Superfund program to clean up the nation's thousands of toxic dump
sites. The polluters responsible are supposed to defray the costs, but
corporations sue in court to minimize their liability. Between 1986 and
1989, insurers spent $1.3 billion on Superfund clean-up and litigation
-- with $1.2 billion of that going to their lawyers alone!
Three-Mile Island: Improperly trained crews were mostly to blame
for the partial meltdown of one of the reactors, which released radiation
into the air and water before it was contained. Gordon MacLeod, the Pennsylvania
Secretary of Health, was fired after voicing his concern that both the industry's
and the state's nuclear accident response plans were grossly inadequate.
The Tobacco Industry: Despite the fact that tobacco kills 420,000
people a year directly, and another 50,000 by second-hand smoke, tobacco
companies still spike their cigarettes with nicotine to make them more
addictive. Advertising campaigns specifically target teenagers to replace
older, dying smokers.
The Toy Industry: American toys are generally manufactured in
China, whose workforce includes slave labor. Many of these prisoners are
political dissidents under a regime that slaughtered hundreds of democratic
protesters at Tianenmen Square. Toy manufacturers think their profits are
more important than sanctioning China for its abusive human rights record.
Unnecessary Surgery: Many studies have determined that about
2 to 3 million unnecessary operations are performed each year, resulting
in 12,000 to 16,000 deaths. These figures are determined by comparing the
surgery rates of doctors who have a profit incentive in recommending surgery
to those who do not.
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