Washington, DC, November 8, 2005 --  

Of all the praises of Western society, perhaps none has so much currency as the notion that democracy tempers the extremes of capitalism. The idea goes like this: capitalism is an unrivaled system for generating wealth and prosperity, but it is heartless and prone to extremes. Through democracy, citizens can vote to have government limit capitalism's excesses to ensure the little people and the interests of society as a whole are protected from powerful capitalist interests.

Nice idea. But it simply doesn't work that way. Recent experience shows that big business interests are very successful at hijacking democracy to promote their own interests over that of the little guy. Nowhere is this truer than in the realm of intellectual property.

In recent years, the music industry has trampled on the interests of the common man. They've sued teenagers for trading music online and succeeded in shutting down file trading companies starting with Napster and most recently Grockster.¹ To this day, it is impossible to legally purchase and receive for digital music online by many artists due to the refusal of the recording industry copyright holders to allow internet distribution. And getting around these obstructionists via file sharing services has become ever more difficult, thanks to the industry's legal maneuvering and successful efforts at putting up technical barriers.

A similar abuse of copyright law became an issue this year when large publishers started obstructing efforts to digitize books. Plans by internet search company Google to scan all paper books to make them searchable online could greatly benefit the public, but it has earned a wrath of lawsuits from the Authors Guild and the Association of American Publishers.² The publishers are using copyright law to destroy any possible threat to their bottom line -- the public interest be damned.

The biggest irony in these cases is that the same intellectual property laws that were designed to protect the public interest against greedy capitalists are now being used as a club by big business to protect their revenues at the expense of the public good. Patent and copyright laws are designed to give limited exclusive rights to inventors and authors -- limiting the rights of everybody else -- with the idea that encouraging profits for creativity benefits society as a whole. Unfettered capitalism has no use for such laws. Chinese capitalists bootleg software, movies, music, and even manufactured goods because copying good ideas is far more profitable than coming up with new ones.

The law is intended to protect authors and inventors from exploitation by such businesses. Big corporations, with their armies of lawyers and lobbyists, have sought to protect their entrenched financial interests by turning the law on its head.

A similar case can be made in the realm of bankruptcy law. Yesterday, Independence Airways corporate owner Flyi filed for bankruptcy. In full page ads in the Washington Post, the airline dismissed the severity of its bankruptcy filing by saying the company is going to be like other airlines. In recent years, the ad notes, United Airlines, U.S. Airways, Delta Airlines, Nothwest Airlines and ATA have all operated under protection of Chapter 11 of the U.S. bankruptcy code. Some airlines, such as U.S. Airways, continually re-enter bankruptcy as a part of its business cycle. That this is a legal and acceptable business practice is completely outrageous.

Appearances aside, allowing airlines to putter along under bankruptcy protection does not serve the public. Newer, more profitable airlines, such as Jet Blue and Southwest Airlines continually rank higher on customer service surveys, yet their growth opportunities are limited so long as precious takeoff and landing slots are taken up by unprofitable airline companies that refuse to die.

Again, the irony is that bankruptcy law is supposed to protect the common man from the extremes of capitalism. England's 19th century debtors prisons could land a man in jail for being behind in his rent. Today's bankruptcy laws were designed to protect people from being persecuted by creditors, giving the debtors time to get back on their feet. There is a public good to this protection, as the theory goes, because it encourages lending and borrowing, expanding the economy.

But as with intellectual property law, big business has turned everything around and used bankruptcy as a tool to protect themselves at the expense of the little guy. The consumer has to pay for expense, bad service on United Airlines, because the airline refuses to liquidate and sell its assets to Jet Blue.

Ideally, these problems would be solved by re-tooling bankruptcy and intellectual property laws to serve the common good rather than the interests of big business. But given big business' big lobbying clout, it's extremely difficult to make this happen.

These cases show a serious flaw in the capitalism-democracy relationship. It is impossible to channel government's arbitrary power in a manner that only serves the public good. Any law that is designed to help protect the little guy from the big guy will usually be manipulated so it ends up serving the big guy. This isn't because capitalists are evil, it's simply because big businesses have more resources with which to hire armies of lawyers and lobbyists to manipulate the machinery of democracy.

The only proven way around this flaw in democracy is to limit government's arbitrary power. Limit government's ability to protect the little guy, and you also end up limiting the government's ability to screw things up for the little guy. This is the old fashioned idea of constitutional limits on government power. The idea may look a bit threadbare and out-of-style, but recent events show that the need for such limits remains as great as ever.

Related Web Columns:

Let Them Die
The Ultimate Bad Service Solution, January 4, 2005

Notes:

1. Washington Post, Legal Pressure Shtters Grockster, November 8, 2005

2. PC World, Google Resumes Book Scanning Project, November 2, 2005