When The Free Market Fails to Serve Customers

Credit: cpsc.gov[/caption]

I have a lot of libertarian friends, including some of the extreme variety who believe that government should not even be providing things like police, fire, roads, and sewers. Because, in their view the competition of the free market could provide such services better, more cheaply, and without the coercion and corruption that often comes with government.

At that point, I have to tell them the story of Marcus Crassus.

Marcus Licinius Crassus was the richest person in ancient Rome, but his riches were not acquired the Ted Kennedy or even John Kerry way. He was a self-made man, having made his money himself. Sort of.

Crassus was a supporter of Lucius Cornelius Sulla. In a sense, those Roman “barracks emperors” who would become chic in the second and third centuries AD started with Sulla when he refused to turn his army over to his rival Caius Marius as directed by the Senate and instead used it to march on Rome and take over the city. Fast forward through a few civil wars, and Sulla was now the dictator of Rome.

Sulla was vicious (though, to be fair, if Sulla wasn’t dead he would argue that he was no more vicious than Marius). He put up a list in the Roman Forum of what became known as “proscriptions.” The people whose names appeared on the list were now “enemies of the state.” They were to be executed. Their property was forfeit. Their widows and daughters could not remarry. Their survivors were forbidden from holding political office. A young nephew of Marius named Julius Caesar had to flee the city.

The property seized by Sulla would be sold at auction. Crassus would pick up a lot of these properties for a song. Showing commendable initiative if not ethics, Crassus would also put the names of people whose property he wanted on Sulla’s proscriptions list.

Eventually, Sulla retired and ultimately died (from overeating, some would say) and Crassus was still young and on the make. He made money from silver mines and the slave trade. The slave trade enabled him to assemble a private fire department. It is this fire department that would make him (in)famous.

Rome was a densely packed city, sort of like Manhattan without the skyscrapers. A fire was a dangerous event, because it could wipe out large swaths of the city; just ask Nero. Rome had a city fire department, but as one might imagine in a time before phones, response times were a little slow. And homeowner’s insurance wasn’t exactly the norm.

So, when a fire would break out, Crassus would show up with his private fire department, usually before the city fire department. But there would be a catch – they would not put out the fire until the owner of the property sold it to Crassus. At “fire sale” prices (pun intended). As the fire continued, Crassus’ offering price would drop. He would also try to buy all the endangered properties around the burning property, or, some would say, sell the owners a type of “insurance” policy. It has also been alleged that Crassus’ people set some of these fires.

It was through this “real estate speculation” – acquiring property through Sulla’s proscriptions and the coercion of a fire – that Crassus became the richest man in Rome and its largest landowner.

But Crassus never attained political power commensurate with his wealth. He did become a member of the First Triumvirate with Caesar and Cnaeus Pompeius Magnus (Pompey), largely as its banker. But he was never popular, mainly because his military abilities (always important in Rome) were mediocre at best.

It was in an effort to provide himself with that martial credibility that Crassus finally met his comeuppance. With commendable initiative if not competence, he led a massive Roman army of heavy infantry on an invasion of Parthia, a land known for its heavy cavalry and horse archers. It apparently never occurred to him that slow heavy infantry are perhaps not the best way to deal with fast horse archers. So, near the town of Carrhae in what is today Iraq, those Parthian horse archers surrounded Crassus’ heavy infantry and buried them in a shower of arrows. Crassus ended up dead – killed, some say, when the Parthians poured molten gold down his throat as symbolic retribution for his legendary greed.

Now, if some libertarians had their way, all fire departments would be private. Imagine having only Crassus and his fire department, or something like it, to protect you. Imagine having Omni Consumer Products run your police department.

The lesson is a simple one: the free market does not always work. There are some things it cannot handle. There are some things it will not handle. And it can become twisted and corrupted to the point where it cannot function.

Think about telemarketing. Was there ever really a call for telemarketing? Did people really think, “Gee, I wish someone would call me at dinner time to offer me a new deal on long distance phone service?” Nope. But it was better for telemarketers, and that’s all they cared about. Even if only 1 out of 100 phone calls made a sale, that was enough to make it profitable. That 99 of those 100 would find it annoying, intrusive, and even disruptive didn’t matter to them.

In this case, the free market did not work. That’s why those 99 had to go to the government to help put a stop to it through “Do Not Call” lists. Even then, the telemarketers tried (and continue to try) to water down the Do Not Call laws.

Think about nonsmoking restaurants. Before the surge of laws across the country banning smoking in restaurants, the percentage of nonsmoking restaurants and bars was statistically insignificant, even though polls showed 70%-80% of respondents wanted such establishments. The restaurants insisted on keeping smoking and nonsmoking sections, which were little different than having peeing and non-peeing sections of a swimming pool. Nonsmokers were rightfully resentful of having to choose whether to stay at home or go to a restaurant only to come home smelling like cigarette smoke and full of carcinogens. When the market refused to respond to these wishes of the vast majority, the government was called in. Now, restaurants and bars are complaining that the free market should decide, conveniently forgetting that they long had their chance to let it decide and they simply refused.

Examples of where the free market has failed can probably be found in nearly every industry, but in recent years perhaps the worst has been in computer software. Pretty much all reputable anti-virus programs require downloadable updates, which is understandable. What is not understandable is having the computer download those updates, which can make the computer and/or its internet connection completely useless for extended periods of time, regardless of what the user is doing and without giving the user a chance to turn them off. Nor is constantly bugging the user every five minutes afterwards that they need to restart their computer for the update to take effect  Yet more than one anti-virus program that I have used does just that. Was there really a demand for this “feature?”

The video game world is in the throes of an odious wave known as “games as a service.”  No longer do you just buy a game, install it on your computer, and play it. Oh, no. Now you buy a “license” as part of a “service” which requires you to always be online. For which they can charge you repeatedly. Or even cut you off at a whim. I personally saw the nasty side of “games as a service” when I bought a new computer this year and tried to install one of my favorite games, Electronic Arts’ Lord of the Rings: Battle for Middle Earth II.  It would not run at all, because the game requires Digital Rights Management authentication online through one of Electronic Arts’ servers – and Electronic Arts shut down those servers years ago. An extended go round with their people revealed that they had no intention of making the game functional again.

So, the game for which I paid 60 bucks no longer works simply because Electronic Arts decided it should no longer work. Put more simply, I no longer have a game for which I paid 60 bucks because Electronic Arts took it away. In another time, that might have been called theft. And perhaps it still should be.

Was there a demand for this “service?” No, and Electronic Arts and other game companies know it. They just don’t care. They want it and you’re going to get it and like it.

Nowhere was this more apparent that in the disastrous launch of the game SimCity earlier this year. SimCity, developed by Maxis, which is now a subsidiary of Electronic Arts, had traditionally been a single-player off line game in which you build a city from scratch. This new version of the highly popular game was the first in a decade and spawned considerable excitement – so much so that the requirement that you always be online connected to one of Electronic Arts’ servers (the same servers they shut down for Lord of the Rings Battle for Middle Earth II) to play it, a first for the series, was lost in the marketing. As could have been easily expected, when SimCity was released this part March, there were too many players and not enough servers. Millions were unable to play the game for which they had paid 60 bucks themselves. Electronic Arts desperately tried to bring more servers online to fulfill the demand, but the damage was done. Those millions of gamers asked why always-online had been a requirement in the first place and not seeing any particular benefit from it. Maxis was defiant, saying that online connectivity was necessitated by their “vision” for the game and was here to stay because it would require “a significant amount of engineering work by our team.”  The former brought howls of laughter from gamers, who suspect “games-as-a-service” revenue enhancement and/or Digital Rights Management as the driving issues. The latter was proven to be an outright lie when an independent programmer simply changed one line of code to make it playable offline. Needless to say, neither Maxis nor Electronic Arts even pretends that the free market wanted this “service.”

Now Microsoft, a company that has made an art form of not caring what its customers want, is getting on the act. It’s Xbox One console, slated for launch later this year, initially had an always-online requirement for reasons Microsoft never really explained. Like Maxis and Electronic Arts, they didn’t bother even pretending the market wanted it, calling it “a service-based world.” After a reaction from gamers that was negative, to put it mildly, Microsoft ditched the requirement.

But Microsoft is defiant about another unpopular “feature” of its Xbox One: the Kinect camera. Though the company insists the camera can be turned “off,” it also insists the camera must be plugged in to the system for the Xbox One to function. Which means, theoretically, someone else, (like Microsoft or, say, the National Security Agency) can turn on the camera. Without your knowing about it. And even Microsoft admits that when the Kinect is turned off, it will still be listening to you. Yes, with the Kinect requirement Microsoft has now invented the Telescreen, and you are Winston Smith. Everything except a splash screen that says “Ingsoc doubleplusgood.”

With lawmakers in Germany, Australia, and Congress are taking a hard look at the Kinect and its privacy implications, Microsoft says it will protect your data from “abuse” and has no intentions of spying on you. No, the Kinect was designed “with advertising in mind” – delivering targeted advertisements to individual users. How comforting.

And to think you get to pay extra to have this Kinect feature that will always be listening in on you and pushing ads in your face. Wasn’t that something you always wanted?

It’s allegedly part of Microsoft’s effort at making the Xbox One the “all-in-one entertainment system” that can do everything – TV, movies, Internet – everything except play video games from Xbox One’s predecessor, the Xbox 360. So if you want to play that very sizable library of games, you have to keep your Xbox 360 hooked up, which would seem to defeat the purpose of the whole “all-in-one entertainment system” thing. Then again, if you want to play those games, you’re “really backwards.” Yes, Microsoft actually called their customers who want backwards compatibility “really backwards.”

Nothing says, “We care about our customers” quite like insulting them. Crassus never quite learned that lesson. At no point does Microsoft even make a pretense of saying “This is what the market wants.” The closest they will go is, essentially, “This is what the market will want.” With little in the way of indication that this is what the market will actually want, only that this is what Microsoft and its advertisers want.

In fairness, the chief rival to the Xbox One, the Sony PlayStation 4, won’t offer backwards compatibility, either, at least not native to the system. But Sony has indicated it will try to offer its extensive library of older games through a cloud-based streaming service. See the SimCity example above as a hint of how well that’s likely to work. But at least they are trying something, which is more than Microsoft is doing.

Microsoft has its own plans for the cloud. I got suspicious when I installed my new version of Microsoft Office on my new computer and found that it kept pushing me to save my files to the “SkyDrive,” Microsoft’s cloud-based storage application. Not bad if you can use it, but in my day job as a lawyer we had an entire class on the ethics of storing confidential client files on the Cloud, with security that, given the latest NSA revelations, is iffy at best, so we were told in no uncertain terms to keep confidential files off the cloud. Except Microsoft is now heavily promoting Office 365, with both the files and the applications themselves on the cloud, with a subscription fee. Not games-as-a-service, as discussed earlier, but productivity software as a service.

The benefits to Microsoft are obvious, especially a consistent stream of income from subscriptions. But is this what the market wants? Some people certainly do. A lot of  lawyers do not. Will Microsoft abandon its traditional software applications and force us into Office 365 and its ethically challenged cloud? When Microsoft executives call people who don’t share Microsoft’s thinking “backwards,” it does not lead one to believe they actually have their customers interests in mind. In fact, Microsoft executives freely admitted that hey ignored the wishes of their customers in the development of Office 365. And then there is the white elephant in the room: Windows 8.

Was there really a large segment of the public clamoring to have the same operating system for their desktop computers and their smartphones and tablets? Was there really a lot of people who thought, “Gee, I don’t like using my keyboard and mouse all day. I’d rather have to sit up from my chair and reach up with my arms to use a touch screen on my desktop computer. That wouldn’t get tiring at all.”

Enter Microsoft and its Windows 8 operating system. Allegedly, someone at Microsoft thought it would be a great idea to have one operating system for both desktop computers and smartphones and tablets. The idea that people use desktops for different things than smartphones and tablets apparently never occurred to this brilliant individual. Like giving a car and a plane the same controls  Nor, evidently, did they consider that while app icons on a smartphone need to be big so your finger can find them, on a desktop those large icons result in more wasted space than the Arctic National Wildlife Refuge. Nor, it seems, did they consider that a touch screen on a smartphone requires only use of your finger, while on a desktop it would require your entire arm, which would make a touchscreen usually tiring and impractical on a desktop.

The result of this brilliant engineer’s vision is Windows 8, which, because of its insistence on bolting a touchscreen interface called Metro on a desktop computer, some reviewers have taken to calling the worst operating system ever, topped off with a 23-minute video demolition of Windows 8 that went viral on YouTube. So hated is Windows 8 that more than one knowledgeable party is blaming the operating system for the worst ever drop in sales of PCs this past spring.

So, you don’t want Windows 8? I know I didn’t. All of the tech people I know warned me to avoid Windows 8 like the ebola virus. When I was pricing my computer for assembly, none of the sales people recommended Windows 8, and warned me to grab Windows 7 while I could, as they were rapidly running out of it. I was lucky. My friends who bought new computers got stuck with Windows 8, and every single one of them hates it.

Now, some of that is to be expected. A new operating system. Early adopters get stuck dealing with the bugs. And Microsoft is coming out with an update to Windows 8 later this year. Whether it ultimately addresses any of the many, many complaints about it remains to be seen.

But their record of, for instance, calling people who disagree with their vision “backwards” does not give much hope. Because, once again, they don’t even make a pretense of claiming the market wanted this. More than a few reviews of Windows 8 have described it as “dragging PC users kicking and screaming” into … something.  “Dragging kicking and screaming” doesn’t sound like responding to the free market. It sounds like imposing something on it that it does not want.

The theme is the same. Whether its scam private fire departments, telemarketing, nonsmoking restaurants, games as a service, or tyrannical operating systems, the theme is the same: the free market has, in these instances, failed. Crassus would love it. The rest of us, coughing in the nonsmoking section of a smoke-filled restaurant trying to figure out how to get past the Metro interface, not so much.

Government intervention was necessary for fire departments, telemarketing, and nonsmoking restaurants to fix where the market failed.

The free market does not always work, and government intervention in it can be a good thing.