The Problem with Capitalism


Office Depot Inc. signage is displayed outside the company's store in Chicago, Illinois, U.S., on Friday, Feb. 19, 2016. Photographer: Christopher Dilts/Bloomberg via Getty Images

Office Depot Inc. signage is displayed outside the company’s store in Chicago, Illinois, U.S., on Friday, Feb. 19, 2016. Photographer: Christopher Dilts/Bloomberg via Getty Images

When WC was a much younger lawyer, circumstances put him in extended contact with the late, arch-conservative Larry Carpenter, former Fairbanks North Star Borough Assembly member and former member of the Alaska State House. At one point, WC mentioned to Carpenter that WC was involved in a case where unrestrained capitalism had run amok. Carpenter’s response was to accuse WC of being a Communist.1

It’s a characteristic of a certain kind of mind to see everything in black and white, in Aristotelian yes/no terms, when the world is in fact a near-infinite set of shades of gray. But WC does view capitalism with a jaundiced eye, and a couple of recent news stories will illustrate why.

Office Depot from 2009 to 2016 offered in-store computer scans using its “PC Health Check” software. If you suspected your computer had malware, or had some other problem, you brought it in to Office Depot and they’d run their diagnostics. If the diagnostic software reported a problem, for the very reasonable price of $300 or so, they’d fix the problems PC Health Check reported.

The only problem was the diagnostic software was rigged. It always reported a malware infection, earning Office Depot an easy $300 to fix a non-existent problem. There’s absolutely no question Office Depot knew if was a scam: Employees who pushed the scans got “positive performance reviews” and “extra commissions” if they “met their weekly PC Health Check runs and tech-support service sales goals,” the Federal Trade Commission said. “At the same time, the Office Depot companies censured store managers and store employees who continually failed to meet these company-wide targets.” Stores that failed to meet their targets were subjected to “‘underperforming’ calls with the stores’ managers that reproached their stores’ performances.”

The FTC busted Office Depot only after KIRO TV in Seattle exposed the scam in a nice piece of investigative reporting. KIRO took brand new, fresh out of the box computers to Office Depot and got the scam.

The FTC finally got around to filing a complaint this year and announced a settlement with Office Depot and its wholly-owned software company. Office Depot agreed to pay $35 million and not get caught not to engage in that kind of fraud any more. For scale, the $35 million represents about 1.3% of Office Depot’s gross profits for 2018.

A classic instance of capitalism run amok. Corporate profits – dividends to shareholders – put ahead of any other consideration.

You’re not persuaded? All right, let’s have another example. Endo Pharmaceuticals Inc. had dubious patents on Opana ER, an opioid drug, and Lidoderm is a transdermal lidocaine patch indicated for relief of pain associated with post-herpetic neuralgia (“PHN”), a complication of shingles.2 A generics manufacturer, Impax Laboratories, inc. challenged the patents. Endo persuaded Impax to back down by paying them $112 million over the course of three years, allowing Endo to continue to makes huge profits on its exclusive ownership of the right to manufacture the products.3 

It was a win-win for Endo and Impax. Impax got to reap hundreds of millions in profits; Endo make $112 million without doing anything at all. Of course, American consumers paid a grossly inflated price for the two products. The scam even has a name in the trade, “pay to delay.” The case against Endo is still pending. Impax has settled. The settlement did not require Impax to pay any fines or disgorge any ill-gotten gains. Apparently the FTC thinks it is okay for medical patients, health insurers and the federal government to have paid for over-priced, non-generic drugs for three years.

Another perfect example of capitalism running amok at our expense.

WC strongly believes that capitalism must be regulated. If these two examples don’t persuade you, read Upton Sinclair’s 1904 novel The Jungle. If that makes WC a Communist or a socialist, so be it.4

 

 

 


  1. Virulently anti gay Carpenter later announced he was gay, in particularly memorable circumstances. Which just goes to show. Some day WC hopes to get permission to tell that story. 
  2. As long-time readers might recall, WC has a personal interest in these kinds of products. 
  3. WC admits to simplifying the facts a bit; there were more players, and layers of pay to delay payments. You can read the FTC’s complaint for the full details. 
  4. WC received an email recently accusing him of being a “muckraker.” Sinclair Lewis, of course, was the original “muckraker.” WC would love to be a muckraker, and embraces the accusation. But, truthfully, WC isn’t a good enough writer to merit the title. 
Advertisements

3 thoughts on “The Problem with Capitalism

  1. In your blog entry “The Problem with Capitalism” April 1, 2019, you describe the late Larry Carpenter as an “arch-conservative” as well as “virulently anti gay.” Arch-conservatism connotes extremism, anti-gay connotes bigotry. Never in my decades-long relationship with Larry, did I hear him say or do anything that would support those claims. On the contrary, in my experience, Larry was open-minded and tolerant of diverse opinions and beliefs. A newsman who valued truth and provided a platform for others to express their views is anything but a bigot.

    I found the references to Larry in your blog piece to be petty and mean-spirited. They added nothing to your story on capitalism, serving no purpose other than to bring attention to yourself while besmirching the character of a man no longer alive and able to offer a rebuttal. It has been my experience, people over-mindful of the sexuality of others are often conflicted about their own.

    R. Steven Fletcher

    • Interesting comment. WC assumes Larry never called you a Communist to your face? WC listened to Larry spew the most hateful anti-gay statements you can imagine on two separate occasions that WC recall. In your accusations against WC perhaps you have identified the seeds of those statements from Larry.

      Larry’s boondoggle, the Center for Entertainment, now a Sears store, sent two lenders into FDIC receivership, wrecked the finances of his three partners and put several of his construction vendors in bankruptcy. The Center lost money, a lot of money, every day it was open. About $18 million went into it; in the end, the FDIC sold it for $1 million. That was after Larry left town, leaving it to others to clean up the mess.

      So WC has lots of reasons to dislike the late Larry Carpenter.

      /WC

Comments are closed.