This post first ran on January 7, 2013
By Matt Stoller, who writes for Salon and has contributed to Politico, Alternet, Salon, The Nation and Reuters. You can reach him at stoller (at) gmail.com or follow him on Twitter at @matthewstoller
Throughout much of the United States, cell phone service is terrible (so is broadband, as Susan Crawford shows). And not just in rural or sparsely populated areas, but cell phone calls routinely drop in major metropolitan areas. You can’t use your phone underground in New York, and there are plenty of places on Capitol Hill you can’t get service. I actually once had trouble getting service near the Federal Communications Commission. This is a result of a lack of competition and increasingly poor regulatory policies. In the late 1990s, 50% of wireless revenues were invested in wireless infrastructure. By 2009, that number dropped to a little over 10%. What is it today? We don’t know, because the FCC no longer even collects the data. The result is that your cell phone drops calls. Cell phone service is also expensive, and the companies nickel and dime you – America is one of two countries where the person receiving the call has to pay for the call. A rough calculation shows that up to 80% of the cost of your cell phone service comes from corruption.
Our banking services are similarly terrible. We have an increasing amount of power in the hands of a few large consumer banks. In most of Europe and in the UK, consumers rarely use checks, they simply transfer money over the internet. A paper check is somewhat absurd – a check is a few bits of information, so there should be no reason to clear this through a paper-based system. But in the US, the backend is still rooted in a 1970s architecture called Automated Clearing House, which was itself layered onto a much older system. This system allows checks (and debit card transactions) to take up to five days to clear, and is remarkably insecure. The association that runs the ACH, known as the National Automated Clearinghouse Association (NACHA), refused to upgrade it after member banks voted to kill a measure to speed up our payments clearing system. In America, the largest banks – JP Morgan Chase, Bank of America, and Wells Fargo – are only now introducing products to allow internet transfers between bank accounts. I tried Chase’s Quickpay service a few weeks ago, and it’s pretty confusing and limited. Mostly, the fat and happy credit card oligopoly of VISA and Mastercard enjoys absurd margins, a roughly 2% tax on every transaction in the country.
These systems interrelate, and inefficiency in one impacts the other. This became very obvious to me when I went to Kenya last summer, and saw how a semi-competent telecom and banking system could work. Kenya has the world’s most innovative mobile payments system, called M-Pesa. M-Pesa is a cell phone based cash remittance system based on text messages. Unlike Chase’s Quickpay system, M-Pesa just works, and works well. You load your SIM card with money at any number of street stalls, telecom stores, beauty shops, or anywhere else someone has decided to set up a Safaricom outlet. Transfers happen via text message, and they cost 0.5 – 4% of the cost of the transaction, which is cost effective for a country where so few people have access to banks. Withdrawals can happen at any Safaricom outlet. If your phone is stolen, that’s ok, the cash is loaded onto your SIM card and you have a unique password. And everyone uses it. It’s like Paypal, only it’s not terrible.
No one quite knows why Safaricom, which is essentially a monopoly, has been able to make this system work in Kenya, whereas large banks and telecoms haven’t been able to make something similar work in the United States. There’s a good case to be made that the lack of banking services in Kenya left open a large business opportunity. There was a ready made culture for this service – workers in Kenya often send money they make in urban areas back home, and there are many small retail stalls run by shopkeepers which were quite willing to sell Safaricom services. M-Pesa first caught on among the unbanked. In the US, most people have access to banks, and remittances are only common among certain population sub-groups (the Consumer Financial Protection Bureau is actually beginning to regulate the space). Credit cards are common. But still, this doesn’t explain why I can easily transfer money from a checking account in Europe to a friend’s checking account in Europe, but can’t do it here. I spoke with representatives from Dwolla, which is a company attempting to build a similar system in the US, and they didn’t really have an answer. The Federal Reserve, which overseas check-clearing in the United States, hasn’t been able to force an upgrade to the clearinghouse that American banks use. The National Automated Clearinghouse Association (NACHA) hasn’t wanted to, and didn’t respond to my inquiry as to why they aren’t trying to make it happen. And unlike Safaricom, American telecommunications companies haven’t pushed into the banking space, largely resisting the ability to buy goods and services via text message or short codes.
This isn’t just a problem of monopolistic behavior or excessive market power. Safaricom is a very powerful company in Kenya, and there is basically no competition to what they do. Yet they have produced a terrific system that companies all over the world are trying to replicate. Cell service on volcanos where no one lives except zebras and lions is more reliable than cell service on Fifth Avenue in New York. What seems to have happened is that American corporate executives are now more focused on financial engineering, which is essentially the extraction of capital from their enterprises and from the public, than they are at selling improved goods and services. For example, GE just got a tax break extended which added $3 billion a year in annual profit in the latest fiscal cliff deal. That’s a lot of money, and not one good or service was improved to drop that cash to the bottom line. As another example, the cable industry is projecting an average monthly bill of $200 by 2020, versus $86 today. At 73 million subscribers, that’s an additional $100 billion a year of revenue. Comcast alone has 22 million customers – that’s $30 billion a year for this one company alone. And let’s be clear, this is not going to better products, Americans tend to get worse internet and cable service than counterparts around the world. Investing in manipulative pricing schemes, lobbying for tax breaks and not investing in good infrastructure is a rational choice for American corporate executives, since their ethic is to extract as much capital as possible from the American economy. And yet, this is why America can’t have nice things.
Antitrust is the core problem here. Without restraint on behavior, corporate executives will work to grab as much market and political power as possible, because only market power and political power allows them to have pricing leverage without investment, risk, or innovation. Competition is the enemy of these businessmen. America has a long tradition of monopoly power and anti-monopoly sentiment and activism. From the progressive era of Teddy Roosevelt to the early 1980s, America had a strong tradition of antitrust regulation rooted in the understanding that too much market power led to inefficiency and price gouging. This tradition ended under Reagan. Since this dramatic shift in antitrust enforcement, corporate power in every industry from cable to railroads to rental cars to banking to health insurance to pipelines has skyrocketed. The result has been inefficiency and price gouging. American electric utilities have dramatically reduced the number of people they have that can repair power lines, which is why it took so long to restore power after Hurricane Sandy. Increasingly, services provided by American corporate oligopolies are terrible. That’s why, if you want to see the future of banking services, you have to look to Kenya. We know how to fix this. It’s called antitrust. And we have to do is dust off some old law books, decide that greed isn’t the only core value we believe in, and get to work.
Interesting post. There is nothing wrong with a paper based payment system. It should be part of a broader online payment service. I’ve made countless payments via check because 1) I did not have the cash on hand 2) it was a way to settle the payment right there on the spot 3) and online transfers were not available due to a lack of computer at that time. Besides, according to the thesis of the post, you are will be ripped with bad internet service, so many older Americans prefer to use the paper based system. Checks give users more options than an online payment only service.
Yep. The American wireless service is very expensive and crappy at best. Here in the EU the Commission is always trying to wring out new cost savings from the Telecoms. The latest consumer friendly improvement has been the lowering of cross-border tariffs. Our data service costs were cut in half. To make matters much tougher, the EC periodically and publicly chastise countries for having sloppy service. Telecom CEOs appear to take it seriously.
Of course, some countries have better telecom infrastructures than others.
It is time for Americans to take politics much more serious and find ways around the rigged 2-party system.
Sadly, US voters (25% of the population maybe) are no longer capable of forming a coherent opinion on the state of the Union so voting does them no good. the rest don’t vote so don’t matter.
The dumbing-down of the population has been completely effective in eradicating all resistance to corporate control of the economy – maybe as the fresh-water / weather crisis gets worse some states will secede and restore sanity locally – seems unlikely though and would surely be resisted by armed force.
The “dumbing-down of the population” includes most liberals, who have been brainwashed into believing that identity politics is the only realistic avenue open for positive results. I find that many liberals are conceptually impoverished when it comes to understanding the breadth and depth of the capitulation.
The terms “intellectually dishonest” and “willfully ignorant” come to mind to describe the attitudes you encounter. What else is someone who is captured by and invested in the system to do especially if they don’t even realize that they are in a box? It does all come down to the captured, manipulated and propagandized main stream media.
The dumbing down includes everyone. Liberals are just as brainwashed as conservatives these days and just as authoritarian. There’s only a very tiny percent of the populace who has somehow managed to maintain a fairly clear-sighted view of what’s actually happening.
How one can make changes with a clearly brainwashed populace is the question. As long as most citizens buy the nonsense that there’s some “real” difference between the 2 branches of the UniParty, then we’re screwed.
OTOH, people do stop voting because they realize that absolutely no one is really serving their needs. And hence: goal accomplished for the 1%! Albeit, who can blame citizens for their apathy? Their needs are most definitely not being served.
I think that provides reason for hope, if people are just ignorant then educate them when the opportunity arises.
Very true! That’s why it disturbs me when people recommend that eligible voters stay away from the polls. They think that it will embarrass the Powers That Be if the election turnout is ridiculously small. But it won’t embarrass them; it’s almost impossible to embarrass the Oligarchs. A low voter turnout just gives our Dear Leaders what they want: compliant Democrats or Republicans in political offices.
Instead, people should vote for third party candidates whenever they have a chance. The third party candidates will rarely win, but in some U.S. states, if enough people vote for them, their party will reach a threshold of vote percentages which will make it easier for members of that party to get on the ballot in the next election.
Some examples from the Wikipedia article:
It makes sense to vote 3rd party if you believe the votes are counted which I think is more likely where there is a paper trail (of course if your convinced they’re all diebold hacked then …).
As for California, I really don’t think ballot access matters that much unless you got overwhelming 3rd party turn out. Why? Because other than for prez, with an open primary system like in CA now it’s pretty much impossible for 3rd parties to GET BEYOND the primary. It’s always the top 2 candidates, in a blue state, they are sometimes both Ds and sometimes an R and D, but they don’t tend to be 3rd party candidates.
The act of casting a vote ratifies the system. If the system is crooked, corrupt, unfixable, oriented toward the outcomes of a specific class, and just about anything but what it says on the label, why would one vote confidence in it or attest to its legitimacy by doing so? Worse, why would *anyone* attest to the legitimacy of a system based on divide-et-impera from the very beginning? For that matter, why would a system that’s quite happy as it is allow such a challenge if there were a danger it could succeed? Finally, why would anyone attest to the legitimacy of a system that allows malfeasors the right to work their malfeasance against the public interest uninterrupted and with impunity, and has repeatedly and reliably acted to neutralize those who attempt to stop their actions to the maximum extent they could get away with it?
The need for vested authority is pathological, and a system built on vested authority will always serve the interests of the fewest people possible. I don’t see what responding to a survey, one that they have seen fit to ignore at will, is actually going to do about that.
To add, if voting worked to produce policy outcomes (despite the Framers’ intent being expressed in crisp black and white in Federalist #10), a) it would have by now b) as Emma Goldman said, it’d be illegal. So why you are promoting a ritual that not only doesn’t do what you say it might, but was designed speciflcally against that eventuality, is what I’m not understanding.
So what do you suggest as an alternative to voting against Democrats and Republicans?
Simply add another option to the ballot that reads: “NONE OF THE ABOVE.”
Think we’d all be surprised at the increased voter turnout.
I know that young U.S. Jews often get a chance to travel to Israel. Imagine what a great investment this is. Perhaps a well meaning billionaire could start giving travel scholarships to 16 and 17 year old kids to travel abroad. Ideally, to qualify, the kids would be from the part of the population that is unlikely to otherwise leave the country or obtain a passport. No country is paradise, but the opening of young minds to the variety of responses to society’s needs would be awesome.
Brindle: Your bias is showing. As a reader of both liberal and conservative websites, I can say without a doubt that liberals rely on facts while conservatives rely on delusional name-calling and no facts at all. That said, the average American is probably too stupid to live.
Americans don’t vote because the people running for election do not (campaign promises to the contrary) work for the people doing the voting. This has been true for many decades, if not forever. Despite the mistaken impression of many Americans, we did not enjoy a perfect state of democracy before the passage of Citizens United in January 2010. Therefore, the solution is not a constitutional amendment overturning that decision.
Did CU make things worse? Not exactly. It made the profound corruption more obvious, which could actually be seen as a significant benefit of the decision — if the people would wake up and regard it as such. To be meaningful, the 28th amendment to the constitution will have to state clearly that 1. Only human beings, and not corporate entities of any kind, are entitled to constitutional rights, and 2. Money is not speech.
Spot on Ms Carla.
Is this the web site you intended to show us?
Since it is almost impossible to compete with either party due too capital investment required. Maybe the answer is in voting against your best interest till the worse of the two options forces the other party to actually do who the poor and ill-informed believe it is doing.
Who should be what in the above state.
These all sound like problems that can be solved THE AMERICAN WAY, namely BOMB THEM WITH MONEY.
It just so happens that Warren Buffett has $50 billion cash on hand, and some doubt about what to do with it. Perhaps he could be prevailed upon to partner with Safaricom, or to try to bring good cell service to the USA?
George, who would do it himself, except that he is short a few zeros in the cash on hand.
Oh, you mean the Lawrence Lessig approach? Pure and utter B.S.
If Lessig can’t offer them the patrician lifestyle and prestige forever, he’s got nothing to offer (and there’s an expense account that gets bigger and bigger the more influence you intend to wield). Buying elections is short-termism. Buying the officials, on the other hand, is playing the long game.
We have moved from value creation to value extraction and the best way to extract value is to have a monopoly or near monopoly and limit choice. While these companies love to talk about competition and the “market” driving the best outcome, they work hard to kill both.
“Cell service on volcanoes [in Kenya] where no one lives except zebras and lions is more reliable than cell service on Fifth Avenue in New York.”
I love it!
The article finds the correct problem, but makes the wrong diagnosis. A very major reason cellphone sucks in the US is how it was allowed to evolve there. While other nations imposed single standards like GSM, US decided the “deregulated free market approach” was better. Kind of like saying “lots of railroads can compete in a free market and they can all have different track sizes.”. So when you drive down the street, your phone must make a complicated handoff from legacy CDMA from one carrier to the next cell tower, run by another company on a different standard (GSM etc). That handoff is technically complex…and voila the call drops.
Try travelling sometime to a nation that got this right, Korea, France, China, Sweden etc and you’ll be amazed. Free wi-fi and perfect cellphone coverage on the train zooming from the Hong Kong airport. But hey! At least America has incredibly cool new ways to spy on and kill people around the globe, that’s some consolation I guess (/snark off)
M-PESA apparently got a helping hand from DFID, the UK development ministry (like USAID).
There are many opinions on how important that was to getting it started, but making it a much larger success certainly was not only due to DFID support. M-PESA is now being rolled out in some European countries. Just goes to show that we can all learn from one another – especially if we are not bedded comfortably on our monopolist profits.
And yes, I am still surprised that the only way my American friends living overseas can pay their taxes (don’t get me started on taxation based on citizen-ship) is by cheque or by paying super-high fees. The same goes for the phone, mobile and cable charges I hear about and the need to change provider every year to avoid the full price charges. Then again, there are plenty of attempts to get money out of consumers here in Europe – clothing, consumer electronics…. you name it. Maybe it all averages out?
Not to beat up on straw men, but I really hate when people deploy lines about how efficient the private sector and corporations are. It’s so patently false. Corporations win with sheer bulk and via legalized bribes to politicians. Small er businesses are generally orders of magnitude more efficient in any field outside heavy industry.
I see your point about sufficient anti-trust enforcement. But isn’t there a better way?
After all these companies are corporations and require charters to operate. Those charters come from us, the people. Why can’t we cancel the charters as we see fit? If a corporation is perceived to be working against the public interest, we should simply be able to exterminate it.
So much to comment on in this piece – after reading about USB interface’s inherent lack of security, and the off-hand mention of how insecure the check clearing system is – I have absolutely no enthusiasm for enabling more convenient money transactions through a wireless interface. Though I do agree with the point made about how poorly American Oligopolies and Monopolies serve the public, from poor cell-phone and Internet service to overpriced relatively archaic Banking service. [I’m less impressed by the great cell service on volcanoes where no one lives compared with the cell service available in downtown Manhattan. That compares apples and oranges. The volcano has great cell service because of an unimpeded line-of-sight to a cell tower. Manhattan has poor service because tall buildings block the line-of-sight to any nearby cell and the cost of installing a cell site is subject to rents collected by other large rapacious financial entities who own the best cell locations, though the lack competition means that carriers don’t try too hard to place enough cell sites.] We’ve been taught these lessons about Monopoly several times in our history.
Monopolies/Oligopolies squelch competition, often through means other than fair or ethical, crushing small business and buying up or destroying weaker competitors. The Xtreme-brand of ‘free’ market leads to Darwinian selection of the ‘fittest’, selecting for brute size, rapaciousness, and amorality. Monopolies/oligopolies block innovation. They add costs and complications to our lives. They have so trimmed back services and maintenance, as in the example of the disappearing linemen, that our communications, water, electric, gas – the infrastructure we depend on has grown fragile to the point of collapsing under the least disturbance. They have streamlined their own supply chain so that a single failure in the chain can halt the just-in-time production of dozens of products. To complicate and further degrade what quality remains new forms of monopoly create toll roads to consumers in the world of brick and mortar, and the world of the Internet. Big sellers dictate to big sellers of product lines and brands what price they can charge for their products squeezing the margins and quality of the goods produced by the suppliers of the branded products, the remaining small firms here and abroad that still actually make products. The Monopolies/Oligopolies drive down wages and salaries and press more and more layoffs.
As the other comments discuss, the same Monopolies/Oligopolies own the Anti-Trust arm of our government along with its other arms and legs. But as has been stated many times in other threads at Naked Capitalism, voting or not voting are not the only political acts we can perform. Peaceful demonstrations, marching in the street, protests, sit-ins, civil disobedience are no longer viable options in this police state that grew up around us as we slept. There are many things we have a perfect right to do that could have impact – if we all did those things at the same time. Sit-in at Wall-Street? Why not just saunter by, again and again through the day by the thousands. It’s not a demonstration, not a public assembly – we all just felt like a saunter at the same time and place. Similar actions can be done through phone calls, visits to websites, emails. Don’t vote for 3rd parties, just vote ‘no’. In many (most?) jurisdictions the vote must be tallied and reported. Don’t skip out on registering and voting. Register a firm vote of ‘no’. You won’t be considered apathetic and you can rest with clean conscience knowing that you didn’t “encourage them” or “validate” the process. There are no lesser evils at the polls – evil has two faces. [Kind of weak on ideas for actions — I think its time to study the successful protests elsewhere in the world to find ways to protest that avoid direct confrontation with the police state. In a peaceful demonstration, civil disobedience, or a pitched battle — we lose. In a sustained “asymmetric” campaign we can win.]