When Scottish economist Adam Smith wrote of the “invisible hand” in An Inquiry into the Nature and Causes of the Wealth of Nations , he argued for governmental non-interference in business affairs. The enlightened self-interest of the individuals producing and selecting goods and services, Smith contended, would lead toward the general good.
Optimizing economic activity depends on the free flow of accurate information. Bad information, such as false claims of durability for a cheap knock-off of a higher-quality product, distorts economic choices.
Government serves commerce through the rule of law. For example, civil law helps to enforce contracts and discourage abuse. The law of torts includes provisions for intentional harm and harm caused by negligence. Knowing there could be damages awarded for failing to exercise due care in doing business strengthens the invisible hand.
But what of cases in which malfeasance harms many but the individual damages are small? For example, last month eBay was accused in California Superior Court Santa Clara of having used shill bidding (fraudulent raising of bids) against its own customers to drive up prices and increase its own fees. No one customer likely would have been harmed enough to warrant an individual lawsuit.
Class-action lawsuits serve the public interest by aggregating the harm done to many victims so that abusers can be penalized sufficiently to discourage similarly harmful actions in the future. Class-action suits serve the long-term interests of the entire economy by increasing the cost of doing bad business.
Recent class actions against software vendors and service providers illustrate the importance of these issues to network and systems administrators and users:
• Apple was sued last month for allegedly harming resellers and consumers in a variety of ways, including stealing client lists and misrepresenting used equipment as new products.
• Fujitsu was sued for selling defective hard drives and settled a class-action lawsuit in March 2004.
• Microsoft was subject to a barrage of anti-trust lawsuits claiming abuse of its effective monopoly on PC operating systems.
• PayPal was accused of improperly handling suspected fraud involving its customers.
• Verizon is accused of harming users through its radical spam-blocking policies.
Last month, President Bush signed the Class Action Fairness Act of 2005 . The Act moves any class-action lawsuit with more than $5 million in potential damages out of state court if less than one-third of the plaintiffs in the action are from the same state as the defendant. Unfortunately for the invisible hand, there are only 678 federal judges who potentially will be hearing these cases, instead of the 9,200 state judges who could have done so. As a result, the prospects for speedy hearings are now poor.
I hope Network World readers will pay close attention to what happens to consumer power as this supposed reform begins to shackle the invisible hand.
Kabay is associate professor of information assurance in the Division of Business and Management at Norwich University in Northfield, Vt. He can be reached at mkabay@norwich.edu.
