Chapter 2 Nurturing the “Consumer-Side” Economy
“Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer..
— Adam Smith, The Wealth of Nations, 1776.
By the early 1970s, Nader’s many task forces had exposed dozens of outrages committed by the “supply-side” of the American economy, from the noxious pollution spewed out by Maine’s paper mills to the hazards of West Virginia coal mines, from price-fixing to fraudulent advertising to collusion between regulated industries and federal regulators. The varieties of injustice seemed endless. But what did it all add up to?
In these early years, the Nader groups assiduously avoided grand theoretical approaches to the problems of the American economy and politics. Why get tagged with some derisive “ism” when the facts were plenty powerful on their own? It soon became clear, however, that what Nader and his associates were groping toward was nothing less than the creation of “consumer sovereignty” in a seller-dominated economy — the achievement of a rarely applied ideal, even by Adam Smith’s reckoning.
President John F. Kennedy had an inkling of the huge potential of a consumer movement in 1962 when he issued his famous “Consumer Bill of Rights,” part of a message to Congress urging it to strengthen consumer protection programs. “Consumers, by definition, include us all,” Kennedy said. “They are the largest economic group in the economy, affecting and affected by almost every public and private economic decision. Two-thirds of all spending in the economy is by consumers. But they are the only important group in the economy who are not effectively organized, whose views are often not heard….”
While Nader surely agreed with that view, he knew that the problem could not begin and end with the consumer; any reforms must first focus on sellers who dominate the marketplace and devise ingenious barriers to thwart competition. As Nader described the problem, “A seller-sovereign economy includes sellers who are monopolistic or oligopolistic without being confronted by ultimate consumers who are organized in monopsonistic [a single buyer] or oligopsonistic [a few buyers] modes. It is an economy where enormous skill, artifice and resources are used in getting consumers to buy what the sellers want to sell, notwithstanding the availability of more efficient, safe, economical, durable and effective alternatives, including that of buying nothing at all.”
The legacy of twenty-five years of consumer activism — verified by hundreds of independent congressional, state, judicial and media inquiries — has been the documentation of the myriad costs of a seller-sovereign economy. These include widespread price-fixed products and services; product-fixing to thwart innovation that could generate competition; deceptive packaging and false advertisements; wholly ineffective or hazardous drugs; product obsolescence; energy-wasting vehicles, appliances and other products; unsafely designed cars; junk food; serious product side effects such as pollution and poor land use; adulterated products; overselling of credit, insurance and alleged health care.
What makes acts of seller-created waste, inefficiency and fraud so insidious is their hidden nature; they are usually not readily apparent to the average consumer and thus not easily purged from the marketplace. By marshalling the facts and popularizing them, however, the Nader forces made a powerful ethical case for government intervention to make sellers behave in fair, competitive ways. But the “consumer-side” also needed new empowerment tools to assert its autonomous will, such as comparative product information (e.g., warning labels, auto crash safety ratings) and new legal rights (e.g., the right-to-know about toxic hazards, procedural rights to participate in government proceedings, the right to initiate class actions).
In retrospect, such innovations seem commonsensical. Yet for decades (and even today), most mainstream economists subscribed to the myth that consumers are already the kings of the free enterprise system, because if they’re buying what the economy produces, then they must be getting what they want. Production is serving consumption; end of discussion. Yet as early as 1914, Walter Lippmann astutely noted that “few consumers feel any of that sense of power which economists say is theirs.” The genius of the early Nader reports was to expose the blatant disparity between obvious public wants (clean air, safe workplaces, honest competition, quality goods and services) and the failures of the marketplace, as constituted, to meet those wants.
Nader and his associates went a step beyond documenting this disparity, however. They waged aggressive follow-up lobbying, litigation, citizen organizing and publicity to force the government to reform a seriously flawed marketplace. As Edward B. Rust, then-president of the U.S. Chamber of Commerce once admitted, “The whole point of Nader — so obvious that it is often overlooked — is his single-minded dedication to making the free enterprise system work as it’s supposed to — to make marketplace realities of the very virtues that businessmen ascribe to the system.”
However consistent with the free market ideology, Nader’s crusades for consumer sovereignty made business leaders of the 1960s apoplectic — precisely because they constituted a new form of accountability on business. A backlash quickly developed: Consumer activism is undermining public confidence in the business system, “the goose that lays the golden eggs.” Consumer activism is depriving consumers of freedom of choice and usurping the powers of state and local government with federal bureaucracy. Consumer activism is stifling innovation and driving up prices. Nader is reckless, irresponsible, un-American.
In “The Great American Gyp,” a 1968 article for the New York Review of Books that was one of his earliest economic manifestos, Nader retorted, “What most troubles the corporations is the consumer movement’s relentless documentation that consumers are being manipulated, defrauded, and injured not just by marginal businesses or fly-by-night hucksters, but by the U.S. blue-chip business firms whose practices are unchecked by the older regulatory agencies.” Consumer abuses are not just isolated, sporadic events, Nader asserted, but systemic: “It is becoming apparent that the reform of consumer abuses and the reform of corporate power itself are different sides of the same coin and that new approaches to the enforcement of the rights of consumers are necessary.”
The reform of corporate power itself! Few public figures dared undertake a challenge so daunting with such serious intent, realistic vision, and long-term commitment. Nader realized that muckraking alone, new laws or a re-invigoration of government powers would not be sufficient to the task, however. Nor would a centralized citizen movement led by him. What was needed, Nader realized, was to organize a new and independent constituency in the economy, the untapped “consumer side,” or what he often called a “countervailing force.” Only a decentralized, loosely affiliated corps of “public citizens” with their own institutional resources and expertise could have the staying power. And so Nader set out to found one advocacy group after another, a Johnny Appleseed planting different seeds in novel locations, hoping they would sprout and bear fruit.
In holding the free enterprise system to its own claims, the consumer movement has focussed on three key economic goals (as distinct from health, safety and environmental concerns): 1) to foster genuine competition by making structural reforms of the marketplace and generating more consumer information; 2) to eliminate corporate welfare, both by cutting wasteful government subsidies to business and by reclaiming taxpayer-owned assets from private control; and 3) to build alternative buying institutions that give consumers greater control over what they buy. This chapter looks at the history of activism in each of these areas.
Fostering genuine competition in the marketplace
Antitrust law is not something that brings outraged citizens pouring into the streets with pickets and angry chants. After all, how many people understand the arcane dynamics of monopolization, oligopoly, anti-competitive practices, price-fixing, product-fixing, tying arrangements, and obscure seller conspiracies such as “protective imitation” and “conscious parallelism”? Yet the economic and social costs of such business shenanigans are enormous.
In the summer of 1970, Nader decided to tackle this little-explored consumer issue by launching the Nader Study Group on Antitrust Law Enforcement, a nine-member task force headed by 25-year-old Mark J. Green, a recent Harvard law graduate. The study group set out to demonstrate in exhaustive detail and readable style how business concentration was bleeding the economy. The result was The Closed Enterprise System, a pathbreaking 1971 book that popularized an issue of numbing complexity but critical importance to consumers.
The book explained how the nation’s 200 largest corporations controlled two-thirds of all manufacturing assets in 1970; how such concentration resulted in losses of $60 billion to the Gross National Product; how prices set by monopoly industries would drop by 25 percent if they were broken up and made competitive; and how business executives had gone to jail for criminal price-fixing on only three occasions in the eighty-year history of antitrust laws. For the first time, a book had drawn clear, understandable links between lax antitrust law enforcement and consumer harm: Inflated prices, shoddier products, more sluggish technological innovation, higher unemployment, and a political system more responsive to the interests of Big Business than the average American. (One of the co-authors of The Closed Enterprise System, Bruce Wasserstein, apparently learned some unexpected lessons from the project; he would go on to become a major figure on Wall Street as a corporate merger and acquisitions specialist.)
In the go-go economy of the late 1960s and early 1970s, corporate concentration was inspiring great concern both because of the Nader reports and two crusading U.S. Senators, Philip Hart of Michigan and Estes Kefauver of Tennessee, who served as successive chairmen of the Senate Subcommittee on Antitrust and Monopoly. The Nader antitrust report won front-page treatment from The New York Times and brought new visibility and attention to the Subcommittee’s work. Green’s book proved to be only the opening salvo of consumer agitation for genuine competition in the marketplace. In 1971, Nader founded the Corporate Accountability Research Group (CARG), directed by Green, to explore corporate power in its many aspects: antitrust enforcement, shareholders’ rights, environmental pollution, corporate crime, and the need for federal chartering of corporations. With his penetrating research and snappy style, Green brought new vigor to a hidebound field of inquiry.
The outgoing, prolific Green soon became a close confidant and protege of Nader’s. In 1976, Nader asked him to become the second director of Public Citizen’s Congress Watch, the citizen lobbying group founded by Nader in 1972. In the late 1970s Green moved to Manhattan to found the Democracy Project, a liberal “think tank,” before running unsuccessfully for the House of Representatives in 1980 and for U.S. Senate in 1986.
While the initial effect of some of the Nader/Green antitrust advocacy was not always dramatic, over time it did help to change the climate of debate about how cartel-like industries ought to be brought to heel. In conjunction with lawsuits brought by the Public Citizen Litigation Group, it became clear that a great many Interstate Commerce Commission and Civil Aeronautics Board regulatory schemes were indefensible, making complete economic deregulation of such industries as trucking and airlines more appealing. In 1983, five years after those industries were deregulated, James Miller, then Chairman of President Reagan’s FTC, told journalist Ken Auletta that “Nader was one of the important catalysts in the airline and trucking deregulation debates.” Although economic deregulation has had some negative side-effects, its overall benefits thus far to consumers have been substantial. Economist Alfred Kahn, President Carter’s architect of airline and trucking deregulation, wrote that by 1989 deregulation had saved consumers more than $10 billion.
While at CARG, Green wrote and edited a torrent of books and articles articulating the consumer interest in corporate power. “For a year I was an absolute little wonk,” Green recalls. “I interviewed 500 people [about antitrust issues]. I became a walking library and source.” Among the books, The Monopoly Makers (1973) explained the cartel behavior of numerous industries, their collusion with federal agencies meant to regulate them, and the costly consequences for the public. Corporate Power in America (edited by Nader and Green, 1973) was a collection of essays examining a range of business abuses. Through the many contacts he developed through his work and his self-taught knowledge of antitrust policy, Green joined Nader in conducting periodic attacks against the Nixon Justice Department’s lax antitrust enforcement. Though corporations have neither bodies to be kicked nor souls to be damned, as President Andrew Jackson’s supporters liked to say, Nader and Green tried at least to devise new mechanisms of accountability to curb irresponsible corporate behavior.
The culmination of five years of Nader-Green collaborative inquiry into corporate power was Taming the Giant Corporation: How the Largest Corporations Control Our Lives (with coauthor Joel Seligman, 1976). The book was a bold, closely reasoned proposal to replace the charade of state chartering of corporations with strong federal chartering. Corporations are nominally creatures of the state, chartered by government for the benefit of the public. Yet what happens when that charter merely sanctions a dismal array of corporate abuses? “When confronted with social or economic wrongdoing, presumably the law — the reflection of democratic will — can provide a remedy,” wrote Nader et al. The creative remedy proposed by the authors was “a federal charter instrument [through which] new rights and remedies can be accorded affected citizens by making the large corporate structure more anticipatory, self-correcting and sensitive to public needs.” A federal charter would promote corporate democracy by giving shareholders and communities new authority over managerial decision-making; it would increase corporate disclosure of companies’ social and financial performance; it would accelerate deconcentration of monopolies and oligopolies; and it would contain a bill of rights for employees.
Taming the Giant Corporation represented the most sweeping proposed reform of corporate power yet attempted by credible activists, and for a time it received serious consideration in respectable circles of government and law. Business leaders, predictably, denounced federal chartering as the blueprint for “Mussolini’s Corporate State.” Ultimately, however, the proposal’s fate was sealed by the absence of a vocal, organized constituency and courageous political leadership — neither of which materialized during the late 1970s and certainly not during the Reagan years. Nonetheless federal chartering remains a worthwhile idea in search of a political sponsor, and Nader predicts renewed interest in it as American-based companies send more jobs and capital abroad. “It’s only when corporations’ allegiance to this country is questioned that people really get an interest in the chartering issue,” he observed in 1989.
Following the federal chartering campaign, the consumer movement has generated two derivative proposals. The first, the Corporate Democracy Act, was proposed as the centerpiece of Big Business Day — April 17, 1980 — at which a coalition of consumer, labor, environmental and other groups criticized the many abuses of corporate power. The issue, wrote Green, is not capitalism versus socialism or regulation versus freedom; it is autocracy versus democracy:
For decades the abuses of the American economy have been addressed by remedial regulation affecting the external behavior of the corporation — don’t pollute, don’t price-fix, don’t deceptively advertise. The Corporate Democracy Act of 1980 seeks to reform the internal governance structure of our largest corporations so that — consistent with a market economy — companies exercise their power and discretion in more democratic and accountable ways.
The bill proposed public representation on corporate boards; greater corporate disclosures to consumers, shareholders and workers; pre-notification of plant relocations; “constitutional rights” for employees; and limits on interlocking directorates. The bill, like Big Business Day, did not gather enough momentum to go very far. It did, however, stake out themes which were picked up in 1989 in a new model state law, the Corporate Decency Act. Drawing upon similar provisions of the old bills and adding tough new criminal penalties for scofflaw executives, the bill has been introduced in several state legislatures, including those of Pennsylvania, Texas and New York.
If the ambitious corporate chartering and governance reforms have languished, citizen action to make marketplace competition fair and robust has not. Most of these efforts have been pursued through Public Citizen’s Congress Watch, a new citizen lobby founded by Nader in 1972 (whose story is told in Chapter 3). Over the years, consumer activists have challenged — and defeated — numerous artificial barriers to marketplace competition:
– Beer brewers seeking territorial monopolies. Beer prices rose as much as 31 percent in New York State when two major brewers began requiring their distributorships (bottlers) to operate territorial monopolies — i.e., not compete against other bottlers and thereby lower prices. In an attempt to sanction such arrangements nationwide, Senator Barry Goldwater and other avowed free marketeers, who had been plied with beer industry campaign contributions, proposed a bill in 1984 exempting territorial monopolies from antitrust laws. After a bruising fight in Congress, consumers, working in alliance with state attorneys general and the American Bar Association, prevailed.
-The legal profession’s price-fixing and ban on advertising. For decades, local bar associations had explicitly banned any advertising by lawyers and issued “fee schedules” specifying rates for various sorts of legal work. While the bar’s leading lights defended both practices as enhancing the profession’s reputation, preventing it from becoming a crass mercantile trade, its chief impact was to keep legal fees high. In the 1970s, the Public Citizen Litigation Group spearheaded several pace-setting lawsuits challenging these practices, introducing new competition to the practice of law and making it more affordable. (See Chapter 7.) In another attempt to evade the rigors of competition, attorneys, doctors and other professions pressed a Congress softened up by PAC contributions to grant them a statutory exemption from FTC oversight. The brazen move, which could have cost American consumers millions of dollars due to anti-competitive behavior, was thwarted by Congress Watch.
-Newspapers seeking to freeze out new competition. When the Detroit Free Press and The Detroit News sought to merge their business operations in August 1988 — as sanctioned by the Newspaper Preservation Act of 1970 — workers, readers and advertisers were up in arms. Although newsgathering operations would remain separate, the joint operating agreement would give the two papers shared monopoly power over the local market. Advertising and subscription rates would surely skyrocket. To challenge the Justice Department’s questionable approval of the merger, Public Citizen sued on behalf of a Detroit coalition both to preserve an independent press in the nation’s fourth largest market and to prevent monopoly schemes in twenty-five other newspapers markets nationwide. By a 4-4 vote, in November 1989, the Supreme Court allowed the two newspapers to merge their operations.
-Product-fixing by industry standards-setting organizations. Some 20,000 trade standards at least partly determine the safety, availability and price of products ranging from household gas stoves to nuclear reactors. For consumers, trade product standards determine such things as the width of auto tires; ingredients of house paint; specifications of lawn mowers; sizes of door frames; and design of child car seats. While the standards issued by some 400 nongovernmental national standards-setting organizations are generally useful, the larger companies that dominate standard-setting committees have been known to use highly restrictive standards as a way to stifle technological innovation and competition. In 1977, a Nader-sponsored report helped publicize various anti-competitive abuses of the private standard-setting process and suggested reforms of their procedures and practices.
Consumer Information as a Spur to Competition
One of the most potent ways to stimulate competition in the marketplace, Nader and his colleagues recognized, was to generate greater quantities of reliable consumer information about products and services, preferably under the auspices of government itself. Developing and publicizing such information can transform markets and induce new, more socially beneficial forms of competition. In the late 1970s, for example, when the National Highway Traffic Safety Administration began testing cars for their crash safety at 35 miles-per-hour — 5 mph faster than the minimum government requirements — automakers responded to the agency’s publicizing of make and model crash data by designing more crashworthy cars.
Some of the most important information programs won by the consumer movement include: fuel efficiency ratings for motor vehicles; automobile crash safety performance ratings; tire quality and treadwear ratings; home insulation quality ratings; energy-efficiency ratings of home appliances; freshness dating on perishable food products; labeling of sodium content, sulfites and other additives in food products; and “patient package inserts” for prescription drugs, to alert consumers to possible dangers of using the drug. In one market after another, it has been shown that generating new consumer information can have an enormous leverage effect; it can enhance consumers’ bargaining power, stimulate new forms of competition, and alert buyers to potential health and safety hazards.
A particularly vivid example of how sellers can exploit a void of marketplace information can be found in the tactics of the funeral industry. At times of intense family grief, consumers arranging funerals were particularly vulnerable to manipulative funeral directors who offered complete funeral “packages,” and did not volunteer prices for the components of each package. “At the time, you really don’t care about money or which casket is cheaper,” one consumer admitted. “It’s so irrelevant, so material, at the moment.” Battling a well-financed, well-organized funeral industry lobby, consumer activists forced the Federal Trade Commission to issue rules requiring undertakers to disclose and itemize the costs of seventeen different funeral services from embalming to flowers and coffins. The FTC regulations, which went into effect in 1985, have helped save consumers millions of dollars, and even helped funeral directors “face up for the first time to what the real costs [of services] are,” an industry spokesperson admitted.
A similar disclosure battle in 1983 sought to force the nation’s 89,000 used-car dealers to equip their cars with window stickers that would clearly disclose the terms of a dealer’s warranty. Used-car salesmanship has a notorious reputation, of course, often with good reason. Considering that consumers were spending $60 billion a year on 10.5 million used cars, the magnitude of likely fraud was substantial. After agitation by Congress Watch and other consumer groups, new FTC disclosure rules finally went into effect in May 1985, giving buyers “upfront and in writing, the most important information they need to know in buying a used car — who will pay for repairs after the sale,” as one FTC official put it.
The transforming potential of consumer information is easy to overlook. But in dozens of markets, the consumer movement has spurred more robust competition in new areas by opening the floodgates of consumer information.
The Crusades Against Corporate Welfare
One special calling of the consumer movement has been to hold up the cherished myths of the free enterprise tradition to the stark light of empirical fact. Are the captains of business indeed the rugged individualists whose brash risk-taking and creativity have made them millions? Or do they tower over Ronald Reagan’s mythical “welfare queen” in shamelessly bilking taxpayers? In a great many industries, the latter description is the more accurate portrayal. As Nader put it, “Ours is a system of corporate socialism, where companies capitalize their profits and socialize their losses….In effect, they tax you for their accidents, bunglings, boondoggles and mismanagement just like a government. We should be able to dis-elect them.”
That government resources are used to reduce the costs and risks of private investment is no revelation, of course. But the actual dimensions of corporate welfare are often cloaked in obscure terminologies and technical arguments, thus preempting any public outcry. How many people realize, for example, that the “Accelerated Cost Recovery System” in the Reagan 1982 tax bill simply meant that corporations would be able to deduct more than a dollar for each dollar they spent on new equipment? Or that the “Hazardous Response Trust Fund” means that the government will contribute a large portion of the money needed to help the chemical industry clean up its mess? How many people realize that the owners of private airplanes received a government subsidy of $700 million in 1982 for the free use of air traffic control, communications and other airport assistance?
The idea that average consumers and taxpayers might object in meaningful ways to particular instances of corporate welfare was largely a theoretical possibility until Nader arrived on the scene. In 1973, Nader took the unusual tack of identifying himself as a “consumer of milk” and suing the Nixon administration in an attempt to roll back its unwarranted $500-700 billion increase in price supports to the milk industry. Nader argued that the milk industry’s $422,500 in contributions to Nixon’s 1972 presidential campaign had essentially been a payoff for the price support increases of the preceding year.
The special contribution of Congress Watch and other Nader groups has been to document the varieties and extent of corporate welfare, popularize the facts through the press, and exert pressure on Congress for reform. Throughout the 1970s, Congress Watch tackled some of the biggest corporate boondoggles to come down the pike. In 1971, when airplane manufacturers tried to stampede Congress into underwriting construction of a supersonic transport (SST) jet plane (cost: $937 million), Congress Watch joined environmentalists to defeat the give-away. (The later French-English partnership in building the supersonic Concorde has demonstrated the economic folly of the concept.)
The nuclear industry has long been a target of the consumer movement because, among other things, it was almost entirely created by government subsidies and continues to receive subsidies that shelter a grossly inefficient technology from the discipline of the marketplace. One of the most egregious handouts to that industry was the Clinch River Breeder Reactor, a demonstration reactor designed to produce more plutonium than it consumes as fuel. Congress Watch began agitating against the project in 1974; nine years later, it finally convinced Congress, with the aid of a later coalition, to pull the plug — after several billions of taxpayer dollars had already been wasted.
Another costly, unwarranted subsidy to the nuclear industry has been the Price-Anderson Act, a special law that imposes a liability cap of $7 billion (before 1988, $700 million) for any damage caused by a nuclear power plant accident. (The estimated cost of a nuclear accident ranges from several billion to several hundred billion dollars.) Despite heavy consumer lobbying to rescind this exemption from liability — so that nuclear power could compete on the same footing as more environmentally benign energy technologies — Congress enlarged but nonetheless renewed the industry’s insurance cap in 1988.
Supplying free water for agriculture and canal transport has always been a popular government subsidy among private business interests. One of the biggest porkbarrel projects in this category — one that consumers and environmentalists were unable to stop — was the Tennessee-Tombigbee canal, an unnecessary, environmentally destructive man-made waterway that cost taxpayers $1.9 billion. Another environmentally disastrous boondoggle approved by Congress, then spooked by oil shortages in the 1970s, was the Synthetic Fuels Corporation, a federal entity authorized to guarantee oil prices and loans, and offer low-interest loans to private synthetic fuels projects that could not obtain private financing. The cost to taxpayers: $6 billion, before it was finally abandoned.
This short list of corporate giveaways is given greater periodic elaboration by Congress Watch in its “Aid for Dependent Corporations” reports, which itemize the varieties and cost of corporate dole. In 1984, for example, the federal budget deficit could have been cut by nearly half, or $82.66 billion, by eliminating government subsidies for corporate America. President Reagan, quoting Franklin Roosevelt, told the National Alliance of Business that “dependence upon relief…induces a spiritual and moral disintegration fundamentally destructive to our national fibre.” Yet as he slashed poverty welfare programs in the early 1980s, Reagan and a compliant Congress proceeded to expand the corporate welfare rolls with new tax loopholes, loan guarantees and outright subsidies.
In an attempt to hold politicians accountable for their hypocrisy and conflicts-of-interest, Congress Watch lobbyists have repeatedly shown how special-interest campaign contributions translate into special-interest subsidies. The 1982 report, “The Special Interest Sweepstakes,” correlated the campaign contributions received by Members of Congress from various industries with their subsequent votes on legislation benefitting those industries. When publicized in their home congressional districts, more than a few legislators squirmed under the spotlight.
Corporate dole is not only hidden in the interstices of the federal budget. The consumer movement has helped remind forgetful politicians and shameless business interests that a great many capital assets in the nation — forests, minerals, waterways, coastal lands and the airwaves used for radio and television broadcasting — are in fact taxpayer assets. Unfortunately, taxpayer assets are too often considered the public’s in name only; in practice, the government has colluded with private interests to give away precious public properties at fire-sale prices. A key mission of the consumer movement has been to ensure that government custodians of taxpayer assets protect them with the same zeal and diligence that corporations protect shareholder assets.
One of the earliest Nader projects to explore the mishandling of taxpayer assets was Politics of Land (Robert C. Fellmeth, 1971), which described the profligate use of land resources in California by private development interests. Twenty-five researchers with training in conservation, law, economics, biology, city planning and other disciplines interviewed hundreds of people to show how developers were ruining productive farmlands, polluting waterways and destroying wilderness areas and other public lands — all so private business interests could turn a short-term profit. A similar account of the rape of one state’s lands was made by journalists Peter Gruenstein and John Hanrahan in the Nader-sponsored book, Lost Frontier: The Marketing of Alaska (1977), which described how the major energy companies were ravaging the state’s environment and destabilizing communities in their rush to extract oil, natural gas, coal, uranium and other minerals.
A more comprehensive, national analysis of the plunder of taxpayer-owned lands was made by Carl J. Mayer and George A. Riley in Public Domain, Private Dominion: A History of Public Mineral Policy in America (1985), a Nader-sponsored book that documents “the betrayal of the vast mineral commonwealth that is in the public domain.” As Nader wrote in the introduction to the book, “Most Americans are startled to learn that they collectively own one-third of the surface area of the country and billions of acres on the outer continental shelf. They would be even more surprised to discover that these public lands are a vast storehouse of incomparable mineral riches.” These public lands, tragically, are governed by anachronistic laws and grossly mismanaged by the four federal agencies entrusted to protect them — the Interior Department’s Bureau of Land Management, the Forest Service, the National Park Service and the U.S. Fish and Wildlife Service. Even though public lands generate the second largest source of revenues to the federal government — some $11 billion in 1981 — the government is a “profligate and careless landlord,” the authors write, and often leases access to taxpayer assets for a fraction of their actual market value.
A powerful theme developed by Nader in the 1980s was the need for the American people to “control what we own.” At the 1981 “Taking Charge” conference that brought together Washington consumer advocates with grassroots activists, Nader noted the array of assets that the public legally owns but does not actually control. This, he argued, should be a focal point for future activism. He cited, for example, the public’s ownership of the airwaves used by broadcasters. The Federal Communications Commission grants broadcast licenses to private businesses for free, essentially giving away a scarce and extremely valuable public commodity. In return, the public receives a highly commercialized, often-exploitative type of programming and has virtually nonexistent access to its own airwaves. Nader has proposed numerous remedies to this basic injustice through the Telecommunications Research and Action Center, whose work is described in Chapter 5.
It was no accident that Nader intensified his studies of taxpayer assets in the 1980s, a time when the Reagan administration was frenetically attempting to “privatize” (i.e., give away for free or at bargain prices) government research and databases, federal power projects, and even government decision-making authority itself. Under President Bush, the trend continues unabated as the government bails out the troubled savings and loan industry from its own profligacy with $300 billion over 30 years, and gives away government research on AZT, the AIDS drug, to drugmaker Burroughs-Wellcome, which priced a year’s supply of it at $8,000 to $10,000 per patient. (The cost to patients has since decreased, due to dosage reduction and public protests.)
To help crystallize the concept of “taxpayer assets” and give it a political momentum, Nader founded the Taxpayer Assets Project in 1989. The Project, directed by James P. Love, identifies areas where taxpayer assets are being grossly mismanaged and where they could be deployed in more efficient, democratic ways. One key target has been the cheap access granted by the federal government to federal lands, as first described in the Mayer/Riley book on public lands. The Project has also fought federal government attempts to give away taxpayer-funded research and development. In addition to the AZT case, the Project is fighting an attempt to allow a drug company to obtain cut-rate access to a drug compound, taxol, derived from trees located almost exclusively on federal lands. Still another frontier for improving the management of taxpayer assets is the federal government’s many data collection systems, a rich reservoir of information that is often given away to corporate “information vendors,” who then charge libraries and citizens outlandish prices for access to government information.
Inherent in all of the consumer movement’s attacks on anti-competitive practices, slack antitrust enforcement, inadequate consumer information, wasteful corporate subsidies and ripoffs of taxpayer assets is a sophisticated indictment of the distribution of power and wealth in American society. Theft need not involve physical violence to be theft; fraud need not be blatant to be effective; crime occurs not just in the streets but also, as Nader often says, “in the suites.” Indeed, the most lucrative thievery, fraud and crime are those that are embedded in the very structure of the economy, and that are therefore virtually invisible. The signal accomplishment of Nader and his associates has been to expose the “hidden” injustices of the economy which exact their own insidious form of “income transfer” — from consumers to sellers, from the poor and middle class to the rich.
The Consumer-Side Alternatives
If much of the consumer movement’s activism has focussed on seller-side abuses, it has not neglected the “consumer-side” of the equation. In the 1970s, Nader was perhaps the most visible, ardent advocate for consumer cooperatives as the best vehicle for advancing consumer sovereignty. The chief advantage of coops, of course, is that they allow consumers to vastly expand their bargaining power vis-a-vis manufacturers and wholesalers. But Nader also rallied behind coops because, unlike traditional investor-owned, profit-maximizing firms, coops do not have a built-in incentive to encourage unnecessary consumer purchases, withhold (or distort) essential information about products and services, use cheap materials, or charge high prices. As Nader pointed out in a 1985 report, “Making Change? Learning from Europe’s Consumer Cooperatives,”
[C]oops can condition the terms of purchase from suppliers well beyond price to include quality, safety, nutrition, warranty, durability. They can refuse to stock products like tobacco or pesticides or foods with harmful additives in their stores. They can federate into larger cooperative networks to move into the wholesaling and even the manufacturing sectors. They can use their cash flow to add ancillary services and leverage their membership into their own insurance, media, travel and adult education enterprises. Where economic issues are shaped by political decisions, cooperatives can inform and organize their membership to participate in a highly informed and persistent manner.
With a vision of such possibilities, Nader and Congress Watch — along with a coalition of coop federations, labor unions, and urban, minority, religious and farm groups — became major proponents for creating a National Consumer Cooperative Bank modeled after the successful farm cooperative credit system which saved many farmers in the 1930s and 1940s. The federally chartered Bank, with an initial capitalization of $300 million in Treasury “seed money,” would make loans to new and existing consumer coops; offer technical assistance to help them succeed; and provide special self-help development programs for poor communities.
The fight for congressional approval of the Bank was a hard, bitter one. It passed the House by only one vote, 199 to 198, and was signed into law by President Carter in August 1978. Since it began operations in 1979, the Bank has not lived up to its supporters’ hopes; the wave of consumer coops that was predicted did not occur. The Bank was essentially privatized in the early 1980s after Reagan unsuccessfully pushed for its abolition. Its management dropped the word “consumer” from the name and failed to aggressively advance its cooperative mission. Nader also points to the high levels of commitment needed to make retail coops succeed — responsibility for management, a labor force, inventory, etc. — as well as a cultural resistance among consumers to such direct involvement conditioned by the norms of corporate consumerism (a resistance that, interestingly, has not applied to housing coops). He also notes the predictable decline that afflicts established coops as coop management becomes entrenched, membership loyalty fades, and corporate competition responds.
In the face of the disappointing performance of coops, Nader reassessed his belief that they represented the best vehicle for advancing a consumer-driven political economy. While not abandoning coops entirely, Nader has instead concentrated, since the mid-1980s, on “an intermediate, transitional” strategy: consumer group buying, group negotiating and group complaint-handling with sellers. In 1985, Nader told Inc. magazine about the great potential of consumers banding together:
What I envision ten or fifteen years from now is the following: The press is jammed in a corridor outside a suite of rooms in the Washington Hilton. Why are they there? Because national consumer groups with fifteen million members are having their lawyers and economists renegotiate the installment-loan contracts of Citibank, which by this time is all over the country. Or, they’re renegotiating the group health and life insurance policies with Prudential, or negotiating with General Motors on airbags or with all the auto companies on fuel-efficiency standards.
Under such group arrangements, consumer representatives would be able to deliver large numbers of buyers to the seller who could come forward with the best bargain — and sellers who failed to come through could be hurt by boycotts or negative publicity. “The government would have nothing to do with it,” Nader explained. “It would all be in the private sector.” The best model for this right now is drug discounts and group health policies that can be obtained by the 31 million elderly people who belong to the American Association of Retired Persons.
On a smaller scale, Public Citizen in 1983 launched Buyers Up, its own group buying experiment, to demonstrate the savings that could be achieved through group purchasing of home heating oil. Within five years of its founding, Buyers Up had expanded from its District of Columbia headquarters into five states. Its 11,000 members bought nearly 7.5 million gallons of heating oil at an average savings of 17 cents per gallon, or $200 per year or more on individual home heating bills. In recent years, Buyers Up has expanded beyond its role as a cooperative purchasing venture. Realizing that the commodities market can greatly affect the price of heating oil, Buyers Up has closely monitored fluctuations in the price of oil in the futures and spot oil markets, especially when disruptive crises like the U.S. war against Iraq send oil prices haywire. Buyers Up put pressure on the Commodity Futures Trading Commission to suspend trading when oil prices rise so dramatically. The group also documents how wholesale price hikes are passed along to consumers quickly, unlike drops in wholesale prices, which can take weeks to reach consumers. By publicizing such issues and bringing them to the attention of Congress, Buyers Up has brought new consumer pressures “upstream” to the wholesale and futures markets, helping to make it more accountable to ordinary consumers. Buyers Up has also documented how an industry-friendly Energy Department has failed to stand up for consumers — by collecting the most basic supply and price data, enforcing relevant laws, and intervening in the market when necessary.
Another “consumer-side” innovation with far-reaching impact, discussed in greater depth in Chapter 3, is the consumer utility board, or CUB. Through a flyer inserted into official government mailings (with the sanction of the state legislature), millions of consumers are invited to pay a nominal fee to join voluntarily with other consumers to form a CUB. The pooled fees are then used to hire a technical staff of economists, attorneys and others who represent consumers in governmental rate proceedings, particularly in telephone, gas or electric utility cases. In Wisconsin, Illinois and other states where CUBs have been operating, the CUBs have given consumers a powerful new voice in official government decision-making, saving them millions of dollars in the process. Although CUBs are still in an embryonic stage, Nader sees them as a potential “silicon chip” of the consumer movement: cheap, highly effective and easily reproducible.
In the late 1980s, Nader began championing an obvious yet little-used “consumer-side” tool for change, government procurement. Taken together, federal, state and local governments spend more than $800 billion, or close to 20 percent of the entire U.S. gross national product. Government does not just buy buildings, airplanes and other institutional goods, but also ordinary consumer products such as cars, light bulbs, appliances, clothing, soaps, pharmaceutical products and energy, and services such as telephone, electrical and health insurance.
Nader asked: What if government began to use its immense purchasing power as a strategic instrument to promote safer, more energy-efficient, environmentally benign technologies? The effectiveness of socially conscious government procurement has been proven numerous times. In 1984, for example, the General Services Administration put out a bid for 5,300 automobiles equipped with driver-side air bags. Ford Motor Company jumped at the chance to fill such a large order, effectively breaking the logjam of automaker opposition to airbags while giving Ford a headstart on its competitors.
To foster “the stimulation effect” that government procurement can generate, Nader and the Center for Study of Responsive Law convened a conference in May 1988, which gave rise in 1991 to the Government Purchasing Project. Headed by Eleanor Lewis, the project acts as an advocate for innovative procurement policies; encourages the use of life-cycle accounting, so that purchases reflect long-term societal and environmental costs; and tries to use government procurement to create new markets for recycled products and renewable energy, obtain healthier foods in government cafeterias, and promote energy efficiency.
It is sign of the maturity of the consumer movement that, in 1990, it founded a new group dedicated to fighting not just individual acts and policies of irresponsible businesses but the very culture of “mass commercialism run amok.” Michael F. Jacobson, founder and executive director of Center for Science in the Public Interest, decided it was time to confront the “buy till you die” ethic that now invades every nook and cranny of American life and corrodes our cultural life. Opening up a new frontier in consumer-side activism, he and several dozen experts on mass culture — from Vance Packard and George Gerbner to Christopher Lasch and Henry Geller — joined together to found the Center for the Study of Commercialism. Its mission: to combat Madison Avenue’s advertising barrage (3,000 messages a day) and to encourage a simpler lifestyle, moderate consumption and civic involvement.
Citing such excesses as the Federal Express Orange Bowl, Virginia Slims Tennis matches, Phillip Morris sponsorship of minority art exhibits, and the British Boy Scouts auctioning off space on their merit badges to corporate sponsors, the Center is dedicated to fighting the rampant commercialism that is steadily eroding our nation’s life. “Today’s marketers promote artificial and obsessional wants, urge ceaseless spending, foster a disposable society, and inject commercialism into every facet of our lives,” wrote Jacobson and Professor Ronald K.L. Collins of Catholic University Law School. “All of this treads on our moral and civic tradition like a bulldozer in a flower garden.”
As an antidote, the Center opposes all corporate promotions in schools as part of its larger campaign for “commercial-free zones” for children, schools, books and museums. It challenges products that promote a use-and-toss mentality and intrusive advertising such as computerized telephone solicitations. To help rein in the worst excesses of advertising, the Center has called for a reduction in tax breaks for advertising; protests against advertising that exploits women (and sometimes men) as sex objects; greater vigilance against “video news releases,” an insidious form of advertising-disguised-as-news that corrupts broadcast journalism; and mandatory disclosures of paid-for product placements in Hollywood films. The Center has also objected to Whittle Communications’ insidious deal to provide “free” newscasts and television equipment to hundreds of public schools in return for the right to advertise to a huge captive audience of students.
Unlike most other consumer crusades, the Center’s campaign takes aim against a nemesis that is everywhere and nowhere. (“Is the average fish aware it’s swimming in salt walter?” asks communications professor George Gerbner, a member of the Center’s board.) While it is often difficult to achieve “victory” over such pervasive abuses, the Center’s protests have already caused some marketers to think twice about dubious advertising schemes, and either modify or drop them. Perhaps more importantly, the Center is nurturing the awareness that America’s cultural life is more than the wearing of Nike shoes or the quaffing of Pepsi — that a life of civic and cultural values transcending the marketplace exists, and must be nurtured and honored.
One of the most imaginative new consumer-side tools for developing a more humane economy may be the “service-credit” barter system called Time Dollars. The Center and Essential Information have been major promoters for this proposal to encourage its adoption throughout the nation’s communities.
The idea was developed by law professor Edgar Cahn in 1981 as he spent endless days in a hospital bed recovering from a heart attack. Twenty years earlier Cahn had been one of the chief architects of the national legal services program for the poor and a founder of Antioch Law School (now the District of Columbia Law School), which is dedicated to the training of public interest lawyers. With so much time on his hands and so little to do, Cahn pondered the tragedy that so many unmet social needs in our nation could coexist with so many idle, unemployed people. Isn’t there some way to bridge this gap? he wondered.
Under conventional free market theory, people’s needs do not really exist unless they can be expressed as dollars — otherwise known as “demand.” Rich people wanting to buy Ming vases and Rolex watches constitutes demand; a crippled elderly woman on a fixed income who needs companionship does not. Chaffing at this perversity, Cahn insists, “The real wealth of a society is not money. It is the time of its citizens. Why couldn’t we create a new kind of money to pay people — money not controlled by the government or the politicians and used to pay people to meet the needs of society?”
Cahn’s solution was “Time Dollars,” a new currency that works like money, but produces very different effects. In a book explaining his innovation, Time Dollars (Rodale Press, 1992), Cahn and co-author Jonathan Rowe liken the concept to a blood bank or a baby-sitting pool. “People earn Time Dollars by helping their neighbors. One hour, one credit. Then they can spend these credits when they need help themselves — or for their elderly parents, or children. (They also can donate their credits to others in greater need.)”
Time Dollars reverse the dynamics of the marketplace by building new sinews of community. “The commercial marketplace has cannibalized the nonmarket economy — the bonds of help and care — of family and community, by turning the things we used to do for one another, into things we have to buy,” write Cahn and Rowe. “The kitchen table turned into MacDonalds and VCRs, extended families into professional services, and families and neighbors were left with little to do besides consume.” Thus in the barrio of El Paso, people with no money pay for medical treatment with service instead — driving others to the clinic, helping in sanitation campaigns, or whatever is needed. The clinic has adopted a new principle of payment: Not just “ability to pay” but also “willingness to give.”
To help develop the Time Dollars concept, Essential Information gave Cahn critical funding support in 1989 and helped him promote the idea. (Cahn also received other foundation support to conduct demonstrations of the model and to develop computer software to keep track of people’s Time Dollars.) When Nader discussed the concept on a recent segment of “The Donahue Show,” the television show, he received thousands of requests for his primer on the topic. “I have rarely seen an idea that has a higher predictability of sweeping the country,” he declared. Although still in embryonic form, Time Dollars have proven to be a versatile, effective alternative to the conventional marketplace.
All of these consumer-side innovations point up inherent deficiencies of the “free market” model and provide workable, flexible and just alternatives. A major impediment to the diffusion of these models is the flawed conventional indices for judging success in the American economy. “Economic evaluation in our system is skewed to the seller, not the buyer,” Nader explains. “Production numbers, inventory levels, GNP, employment — those may be useful numbers for producers, but they’re really just intermediate yardsticks so far as consumers are concerned.” The performance of the auto industry, for example, should not be judged by how many cars are sold, but by its ability to facilitate surface transportation safely, efficiently and profitably. “When someone asks how the auto industry is doing,” Nader says, “the answer should be something like, ‘Great. Fatalities and injuries are down substantially, pollution has declined, and congestion on the highways has been reduced.'”
As the rest of this book makes clear, the consumer movement has come a long way from the days when hapless consumers victimized by a lemon automobile or cancer-causing food additives had few legal rights and fewer government protections, assuming that they had a mind to challenge seller abuses in the first place. Now, inspired by the example of Ralph Nader and empowered by new rights, marketplace information and government support, consumers as a group are more vigilant, more demanding, more aware of quality and safety and price than ever before. The movement is not just about recalling cars, but restructuring the economy.
Major segments of the economy remain dominated by monopolies and oligopolies, and sellers continue to find innovative ways to insulate themselves from competition. Yet there is no denying that the “consumer-side” of the economy shows far greater independence and vitality than it did, say, in the 1950s. It has more expertise and savvy, rights and remedies, and more institutional resources. If a truly consumer-sovereign economy remains elusive, there are valuable tactical lessons to be learned from such recent reforms as the Proposition 103 insurance initiative in California, the CUB movement, and the group buying experiments: The consumer movement must be flexible and evolutionary, seizing the opportunities at hand and pushing through reforms that will generate the biggest ripple effects possible.
The ultimate strength and staying power of the consumer movement stems from its status as more than an aggregation of bargain-minded consumers; it is a movement of citizens petitioning their government. They seek not just more equal buyer-seller relationships in the marketplace but a new role for citizens in the American constitutional system of self-governance. Corporations are not the only institutions which can wield abusive, unaccountable power, after all. Governments can and do, as well, often as the agent for business. If the marketplace is going to become more honest and competitive, it requires a more vigorous, muscular form of citizenship. That too became one of the challenges that Nader set out to demonstrate — by example, exhortation and dozens of studies.