Why Corporations Fight
One of the reputed safeguards for consumers is that companies will challenge each other’s violations of law and marketplace excesses out of their own self interest. This doctrine is called economic pluralism and was given popular currency over twenty years ago in John K. Galbraith’s American Capitalism: The Theory of Countervailing Power.
The trouble with this theory is that it didn’t take sufficient account of the pressures and inducements for accommodation between companies or industries. These include interlocking economic interests, conglomerate takeovers, fear of corporate retaliation by giant firms, and reluctance to start a conflict which could get out of control and backlash. Even in such an elementary activity as one company publicly pointing out its competitor’s deceptive advertising, the practice has usually been mutual toleration of each other’s frauds.
The consumer resurgence in the past decade, with all its documented disclosures of hazards, bilks, waste and monopolistic practices, is beginning to give some companies and industries a measure of courage. For example, after nearly two generations of meekly accepting the way the auto companies designed cars, the casualty insurance industry is edging toward a confrontation over vehicle safety and repair costs.
For four years, the Insurance Institute for Highway Safety, under Dr. William Haddon, has been widely distributing information about eggshell bumpers and the enormous damage caused to specific car-makes at 5 mph collisions. Over a billion dollars a year are wasted by motorists who pay for replacement and repair costs arising out of crashes no faster than walking speeds. Because the IIHS named names– Chevrolet Impalas, Ford Galaxies, Plymouth Furies, and so forth–the industry has begun to put more effective bumpers on cars. On 1973 cars, these front bumpers are now about as protective as those on the 1933 Model A Ford–which is progress, of sorts.
Allstate has been heavily pushing and advertising the merits of the air bag as a major automatic injury prevention system should auto crashes occur. They have fitted 200 of their 1972 automobiles with these air bags and tested them safely with human occupants. This open advocacy has not endeared the insurer with the Detroit auto moguls who want to take their own time about important safety innovations.
Allstate has also challenged the broadcasting networks which have refused the company’s paid air bag messages to the public on the ground that they were too controversial. The company went so far as to testify before a Senate committee in objection to this practice.
Another insurer, State Farm, has petitioned the Department of Transportation about the alleged inaccuracy of GM figures as to frequency of a vehicle’s corner impact involvement in crashes. GM gave a figure of seven percent involvement, but State Farm asserted that corners of vehicles are involved at almost a 40 percent rate. It submitted these figures to support its opposition of “any weakening of the standards promulgated under the [auto safety law] for purposes of stylistic convenience.”
More far-reaching has been State Farm’s quiet but persistent Washington campaign to break the monopoly group which the auto companies have in selling their “crash parts” (e.g., fenders, lamps and grille sections) through their franchised dealers. State Farm believes that excessive profits are made by the auto companies because independent garages have great difficulty in obtaining these “crash parts” from independent manufacturers since auto manufacturers virtually monopolize their production. The Federal Trade Commission has been developing an investigation into this multibillion monopoly but is running into great difficulty getting information from the auto companies.
In other segments of the economy, these healthy corporate collisions appear to be increasing. Smaller companies are using the antitrust laws to challenge monopolistic practices in the computer, telecommunications, utilities, franchise and distribution industries. Sometimes the giants, such as ITT, challenge companies of lesser size such as General Telephone and Electronics Corporation. Last year ITT won in Federal District Court an order requiring GT&E to shed its equipment manufacturing subsidiary. This decision sent waves of concern through AT&T whose equipment subsidiary, Western Electric, may be similarlyexposed to litigation soon.
Many of these corporate conflicts also generate long overdue action by government enforcement agencies, as in the Control Data and Telex court challenges to IBM.
It is too early to say whether such countervailing pressures amount to a trend. Accommodation is still the norm, often even after suits are filed for negotiating purposes, as shown in the recent settlement between Control Data and IBM. But enough creative friction is going on to the consumers’ benefit to illuminate the consumers’ cost of continued accommodation and corporate interlocks.