Who's got the Negotiating Clout?

I'm happy to be alive right now; maybe its the ripples being sent through contemporary political discussions by Bernie Sanders, maybe its the growing sophistication that our modern, hydra-like knowledge production machine (that would be the internet) has brought to every national conversation of concern.  It feels like we're in a progressive moment, which offers the opportunity to examine and address many significant structural inequities that affect the lives of millions of people every day.

An excellent example that illustrates the kinds of conversations that are driving my warm, fuzzy feelings?  I heard on my drive to work this morning that a group of lawmakers in Washington is interested in considering the rules around arbitration.

If you've ever signed a cell phone contract or taken out a credit card in America, there is a virtual certainty that you have tacitly consented to an arbitration agreement buried in the small print of the followup paperwork you got in the mail.  Arbitration agreements typically go something like this:

1. You agree to waive your right to challenge any decision made by the other party (i.e. the company that's offering you the product) through the legal system.
2. Instead, you agree to let all disagreements be decided by an "independent" arbiter that is chosen by the company.
3. You agree to abide by any and all decisions made by the arbiter and waive the right to challenge arbitration decisions through the legal system.

So, in a nutshell, arbitration agreements force consumers to give away their given legal rights to resolve difficulties with companies through the legal system, and instead accept without any right to appeal the decision of a private individual hand-picked and paid by the company with which you disagree.  Totally fair, right?

Just in case you're wondering whether this is ridiculous as it seems, it is.  A quick comparison of available statistics:

• in cases decided by arbitration, companies win 95% of the time
• in cases decided in small claims court, individuals suing companies win 67% of the time

Cause for concern?  I think so.  Besides the issue of objectivity when it comes to an arbiter chosen by one of the parties (and the implication that companies think they should not be held accountable the US legal system) is the fact that the formal legal process provides other ways to even out the deck which is stacked against individuals fighting massive corporations.  For one thing, it opens up the possibility of class action lawsuits, allowing many disadvantaged individuals to pool their resources and have something approximating a fair fight.  For another, it creates the possibility of legal precedent which informs and improves the public debate and legal culture around corporate responsibility and consumer rights.

So why can't the markets fix this?  That's what a conservative economist would argue.  Consumers will choose companies that don't force arbitration agreements down their throats.  Yes, that would work if there weren't a small handful of giant corporations that control nearly all the market share in our major industries.  If all of the four major cell phone providers insist on arbitration because they all have a common interest in keeping leverage over consumers, in classical free market economics, the only recourse a consumer would have is to decide they're giving up their cell phone.

We need government to set rules that stop corporations from stomping on individuals.  It's simple game theory - if there only a few corporations versus millions of consumers, it will be exponentially easier for companies to communicate and coordinate their decisions.  Consumers can't keep up - that's obvious.  The government is our voice and our representative, and the only effective to push back against business bullying.

Unfortunately, current legislation proposed would only address arbitration in the financial sector, but at least the conversation's started.  We'll never walk down this road if we don't take the first step.