Friday, November 4, 2011

Bank of America’s retreat show limit of corporate power

When Bank of America retreated from its plan to charge a $5 fee to its account holders who use debit cards, it was a victory for consumers. Bank of America’s announcement of the fee a month ago sparked widespread anger and was a factor in the birth of the Occupier movement.

Many on the left are suspicious and angry at corporations. A common theme among progressives is that the government is more responsive to the people because government officials are elected by and are responsible to the people. On the other hand, this view holds that corporations are responsible only to their officers and shareholders, people whom consumers have no voice in choosing. The Bank of America saga gives lie to this idea.

Even though Bank of America can rightly be considered an international mega-corporation, the prospect of hemorrhaging account holders and deposits brought it to its knees in a matter of weeks. Consumers exercise this same power over almost every corporation in existence. Consumers have the right to fire any company that does not earn their business. If the company is fired by enough customers, it will either change its ways or go bankrupt.  Corporations can only thrive and survive by giving people what they want.

A similar corporate turnaround occurred several decades ago with an Atlanta-based mega-corporation. In 1985, Coca-Cola decided to replace its century-old soft drink recipe with a new one. The introduction of New Coke went down in the annals of business history as “the biggest marketing blunder of all time.” It took Coke about six weeks to bring back the original formula as Coca-Cola Classic. New Coke has not been produced since 2002.

It is only in the rare case of a monopoly that companies have little incentive to try to please customers. There are very few monopolies today, however. Federal antitrust laws allow the government to veto mergers and break up companies that control too large a share of their markets. Standard Oil and “Ma” Bell Telephone are two examples of mega-corporations that were broken up by the federal government. Most monopolies today exist only in cooperation with government. Local cable television and telephone monopolies are examples.

Even where monopolies do exist, technology is making them less of a factor. Cable companies are vulnerable to competition from satellite television providers such as Dish Network and streaming web content on sites like Landline telephones are increasingly an anachronism as they are replaced by wireless telephones and voice-over-internet phone calls.

The only real monopoly that exists in the United States today is government. No American has any choice when it comes to dealing with the government. Taxes must be paid to the IRS. Cars must be registered with the DMV. There is no alternative to participating in Social Security and Medicare.

In 2010, the federal government made a marketing blunder on the level of New Coke. Over the loud objections of a majority of the American people, Congress passed the Patient Protection and Affordable Care Act, more commonly known as Obamacare. According to Rasmussen, immediately after passage of the law, Americans favored its repeal by a margin of 55-42 percent. In the most recent poll, repeal is still favored by 54-39 percent, yet Congress continues to reject legislation to do just that.

It is true that elected officials can be fired by their constituents, but only at multi-year intervals. Many congressmen were fired in 2010 and, if the current mood persists, many more will be fired in 2012. On the other hand, the nameless bureaucrats that operate the machinery of government on a daily basis are untouchable to normal citizens and are even difficult for their bosses to fire. In contrast, normal citizens can fire any corporation that they do business with at any time.

Consumers should also remember why Bank of America decided to start charging the $5 fee to its customers in the first place. The move came as a result of the Dodd-Frank financial reform bill, which also became law in 2010. The law limited the amount that banks could charge merchants for using debit cards. Since banks couldn’t charge merchants, Bank of America decided to charge its cardholders. Despite the public outcry, Congress shows no signs of repealing this law either.

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