Sunday, December 31, 2006

Goliath for Hire

One of the common justifications that I hear for government intervention in the economy, and specifically for regulation of enterprise is that the individual is exploited and pushed around by big corporations., that a large corporations has the ability to coerce the individual because of the power imbalance. This is what I fondly refer to as the David and Goliath syndrome, only in this case Goliath crushes David. You see this all the time in industries that are believed to be "essential" such as health care. The hospitals, the HMO's, the insurance companies... all "push the individual around". The individual "must have access" to health care, and so is in a tough position. Therefore, we must have controls on the industry.

This is hogwash.

Ignoring for a moment the fallacious claim that the individual must have access to health care, the posited scenario is a straw man. It ignores one fundamental mechanism that the market creates to deal with such a scenario: the agent. The concept of agency is the free market's mechanism for dealing with these sorts of issues. Merriam-Webster Online defines an agent as: one who is authorized to act for or in the place of another. An agent, therefore, is authorized to act on one's behalf in a given situation. What does an agent bring to the transaction? He may bring specialized knowledge, negotiating skills, time to spend on the issue, and even some of his own corporate leverage to engage during a negotiation.

Agents come in all forms, and may spend weeks or only minutes working on your particular issue. The easy ones to think of are people such as: real estate agents, doctors, lawyers, insurance agents. But agency takes many forms, and some are not so recognizable. A search engine such as Google is your agent, for a nano-second, providing you with information from its database. Consumer Reports or Underwriter's Laboratories is your agent, providing you with assurance on the safety or quality of particular products. Or one may think of new business models such as Lending Tree.com, the negotiating site for home loans. These agents serve the same purpose, by representing your interests, and bringing some sort of leverage to your side of the table.

Agency is the natural outcome of any division of labor society, and it is ubiquitous. The market's answer then is: you hire someone to represent your interests in a particular situation. You hire your own "Goliath" to fight your battles for you.

From a November 27, 2006 Forbes article "Only Suckers Pay Retail" comes a great example of how this works. As employees have been shifted to medical plans with higher and higher deductibles, companies such as My Medical Control have formed to meet the needs of the individuals now caught with larger hospital bills that they must deal with. The company has data on common procedures and rates charged across the country, and negotiates better billing rates on its clients behalf, saving the client an average of 22% off of their medical bills. The company, as many other agency's are, is paid out of the savings it obtains for its customers so the agency is accessible to everyone.

Such an agency is the obvious choice for those who need to keep their insurance premiums affordable by taking out high deductible plans. Such people take higher risk of incurring medical costs, but hire agents to act on their behalf if and when those costs materialize.

So stop whining for government to intervene. Find a "Goliath for hire"; they're everywhere.

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