• Buyers-Offering-Cash

    Consumers Can Fight Back

    I cannot count the times I have heard the following critique of libertarian philosophy:

    Yeah, the “free market” is great and all, but without the government, businesses would just screw over the little guy.

    This, however, is what they’re really telling you:

    You’re powerless. There is absolutely nothing you can do to arm yourself against those big bad capital hoarders who just want to oppress the people so that they can get rich at your expense. You need the government to take care of you because you’re a helpless little human being who is incapable of making the best decisions for you and the rest of society.

    This argument could not more condescending toward the average person, the very guy those who make this argument purport to protect. Are the people really this helpless?

    Simply put: no. In the typical business transaction, the consumer holds as much power, if not more, than the seller of whatever good is in question. Even in today’s corporatist environment (the economy of the United States resembles almost nothing of a true free-market, capitalist system), the consumer still retains the ability to singlehandedly decide whether most transactions take place or not, and therefore, is not powerless in the market.

    But, let’s take a step back and look at why people exchange goods in the first place. In any voluntary transaction, both parties experience mutually beneficial trade, otherwise such a trade would not occur in the first place. If a farmer trades eggs with his neighbor, a cobbler, for shoes, he values the shoes more than he does the eggs. The cobbler feels the same way; he values the eggs more than he does the shoes. And in the end, both parties are better off than before the trade occurred.

    The scenario is no more complicated in a moneyed society, either. If the farmer desires shoes, he goes to the nearest shoe store and picks out a pair he likes. He then proceeds to pay the storeowner for them with money (and for the sake of this article, I am not going to differentiate between sound money and fiat money, the latter of which cannot really be considered money at all). Now, in this case, the farmer still values the shoes more than he valued what he traded in order to get the shoes, in this case money, in the other, eggs. And the storeowner still values what he gets in exchange for the shoes more than the shoes themselves. If either party did not agree with the trade, the trade would not occur, and similarly, if either side did not feel like he was getting the better deal, the trade would not occur either.

    It is the principle of mutually beneficial trade that leads to consumer power. So long as the consumer maintains the ability to refuse a transaction, he is just as powerful as the other guy, even the supposed all-powerful capitalist pig. And it must be pointed out that the only way a consumer loses this ability is when the government forces such a transaction, such as the payment of taxes or the forceful purchase of a good (the recent debacle over health insurance comes to mind). In these cases, the government forces the citizen to participate in a trade that would not normally occur. And while the government, or government subsidiary, may be better off afterward, the citizen has a net loss. This is fairly obvious when it comes to taxes, but even in the case where the government forces its citizens to buy health insurance, ostensibly to better their lives, the people who did not have health insurance (and it does not matter the reasoning behind such a decision) are now worse off because they are forced to do something they did not want to do in the first place. It is only through the government that anyone, or any business, can benefit at the expense of someone else.

    Consumers can choose to purchase, or not to purchase, a good for any reason they want. This is why companies try their best to appease their customers; if they did not, if they sold goods the people did not want, or if they had horrible customer service, that company would lose money, which is a great incentive for them to change their practices. After all, earning a profit is one of, if not the biggest reason to create a business, and it is the best gauge of how well that business pleases its customers.

    And now, at this point, our theoretical opposition usually says:

    That’s fine in theory, but that’s not how things work in real life. In real life, the people are beholden to the businessmen. They need to eat, don’t they? Businessmen can charge whatever they want for whatever they sell, because the people will buy the product no matter what.

    Clearly, this thesis fails the theoretical aspects of human action and voluntary interactions per our earlier proof. But there are many real life examples of how the little people in the economy won battles against their seemingly insurmountable enemies – the corporation.

    New-CokeOne classic example is the tale of New Coke. In 1985, Coca-Cola developed a new version of its famous soda, which, by all of their internal company measurements, supposedly tasted better than the original formula. Coke, excited by the prospect of regaining market share lost to its competitor, Pepsi, quickly debuted the product to the public as New Coke. Public backlash ensued; in June of that year, the company received 1,500 calls per day from angry customers who wanted their “old” Coke back. Protest groups were formed outside the world headquarters in Atlanta, Georgia. And by July, Coca-Cola reintroduced their classic formula to store shelves across America. Did the government ever get involved, claiming that Coca-Cola “illegally” attempting to increase its market share? No. The simple fact that New Coke threatened to affect the company’s profit margin in a negative way was enough for them to correct the decision to drop their classic formulation. Eventually, Coca-Cola dropped the entire New Coke/Coke II product line and focused solely on the product its customers wanted.

    Netflix-QwiksterBut this isn’t just a thing of the past; more recently, the CEO of Netflix, Reed Hastings, thought it would be a good idea to split the company into two, one focusing on DVD rentals (Qwikster) and the other on online movie streaming (Netflix). On paper, this would have theoretically resulted in higher earnings for the company, as customers would now need to register for two separate sites. What Netflix didn’t count on, however, was the customer reaction; many people were so opposed to the split they decided to cancel their subscriptions entirely and switch to one of Netflix’s competitors, Blockbuster or Redbox. Netflix’s stock was suddenly no longer the favorite of tech investors, and promptly dropped 14.6% of its value in one day. Netflix got the message; less than a month later, Hastings announced through the company blog that the split would no longer take place and the current pricing structure would remain in tact, giving its remaining customers exactly what they wanted. There was no need for the government to get involved to protect the general public from the greedy leaders of Netflix. The simple desire of Netflix to not go bankrupt was enough for the company to change its mind about the potential split.

    Baltimore-HonThe problem does not need to be nationally recognized either; consumers also have power within their own community. The owner of Café Hon in Baltimore, Denise Whiting, trademarked the Baltimorean term of endearment – hon. Baltimore was outraged; “hon” is a part of their culture and a defining element of the city. While Whiting claimed she was merely trying to protect her business from competition (something that could never be accomplished without a government infringing on the property rights of everybody else), she went beyond her stated goal and seized thousands of dollars of merchandise from a small business at the airport, threatened to sue the city for using the image of the Baltimore Hon on its metro cards unless she had creative control, and even sent a cease and desist order to the website WelcomeToBaltimoreHon.com. Protests were organized, but Whiting’s abuse of the trademark continued. The people didn’t give up, however. The entire community of Hamden boycotted Whiting’s restaurant, and through the power of blogging, the quiet, background protest spread throughout the city. About a year after the protests began, the business began failing so badly that Whiting enlisted Gordon Ramsay’s help through the show Kitchen Nightmares. Over the course of the show, Whiting was forced to realize how badly viewed she was within the community and that it was her actions with the trademark, and her actions alone, that caused the dissention, and unless she gave up the trademark, her businesses were never going to be profitable. Whiting publicly apologized on Baltimore radio, and gave up her claim on the trademark. Even though the effects from the protests did not appear immediately, they did force Café Hon to completely reevaluate its business decisions and eventually, the community won.

    True capitalism empowers the individual; it is only through the government and its monopoly of force that any business can benefit at the expense of its customers. Profits should not be demonized; in a real free-market – that is, one free from government intervention, regulations, and bailouts – profit is the best measurement of a business’s ability to please its customers and motivates the business to do so. It is the government that has always been the enemy of freedom for the little guy, and should never be confused as their protector.

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    This is one of the bajillion outtakes of our group photo at the Bitcoin ATM at the Clover Food Lab in Cambridge (Harvard Square).

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