On Eliminating the Middleman

One of the blogs I follow is a review a day by Powell's Books, the bookstore in Portland which claims (accurately, I believe) to be the largest independent bookstore in the world. The review for today is of a book about Wal-Mart. It is really more of a summary than a review, which makes it an excellent source for anyone trying to understand what is behind Wal-Mart's success.

Many concepts and practices are already well-known to most of us, but the thing I picked up on was the idea of "eliminating the middleman", as the author puts it. Wal-Mart attempts to do this whenever possible, by buying directly from the manufacturer, usually at a negotiated discount price based on the large quantities being purchased.

There is an application of this concept within the company also. Wal-Mart deliberately minimizes its storage space, so as to force its managers to put items being delivered directly onto the floor of the store. There just isn't room to store much stuff. They know what sells and what doesn't, and they avoid stocking things that are going to sit around for years at a time. (This allows Wal-Mart to avoid having to have "clearance sales".)

Lately I have been thinking of other examples of "eliminating the middleman". Saturday I shopped at two Farmers Markets, one in Bluffton and the other a *huge* one in Ann Arbor. Both were great examples of buying directly from the source with no intervening middleman. There is something inherently satisfying in this type of purchasing.

I am aware of a recent trend in the car industry of arranging to purchase directly from the manufacturers in Detroit, thereby avoiding the unwholesome process of dealing with the car dealers. It occurs to me that perhaps one good thing to come of the recent auto industry crisis is a vast reduction in the number of car dealers in this country. Do we really need these huge numbers of car dealers, and are they good for this society? I think not. Surely there is a better system for getting cars to people who need them.

I think the health care issue currently raging is relevant here also. What the single payer system would do is in a sense eliminate the "middleman", the middleman here being the insurance companies with their endless stream of red tape and regulations which they use to deny coverage whenever possible. (My brother says he has to fight with his insurance company whenever his family has a medical bill to be paid. One study I saw found that in California 21% of all claims are denied.)

With a single payer system, payment would become more automatic, saving lots of "middleman" type of hassle and expense, both for the doctors and for the consumers. The advantages of such automatic payment are tremendous. Think of the Mississippi case in which a public interest lawyer sued a hospital on the basis that his client was being charged *four times* as much for a service as someone with insurance would have been charged for the same service, hence his client was being denied equal protection of the laws. This illustrates well the economics of the health care situation. In billing individuals, payment is problematic; perhaps such bills only get paid one-fourth of the time, justifying the quadruple charges being made. When payment is assured, you can charge much less.

Another example is a private practice lawyer representing indigent defendants. In Kansas the State paid $50.00 an hour, a fraction of what a good defense attorney would charge a client. Yet the system worked, because $50.00 an hour assured is about the same as $150.00 an hour which may or may not be paid. In 1984 the State took things a step further and established Public Defender offices in the largest Counties. The savings were again on the scale as just mentioned. This is demonstrated by the figure used when a defendant is given probation, with a condition being he has to repay the State for his Court-appointed lawyer. The figure used in the run-of-the-mill case was about $100.00. This is a fraction of the $250-750 range formerly paid under the $50.00 an hour system. So, one can see how doing things in volume can mean tremendous savings all around.

I was able to do unemployment compensation hearings for $100.00 each, by doing them in volume with a client involved to make payment and filter and prepare the cases before I got them. Doing them on an individual basis, I had to charge $250-300 for the same thing, just because that was the time and effort involved, compared to the volume system.

With a single payer health care system, the economies for the doctors and hospitals would be tremendous. I don't think people realize how much more efficient and cost-effective this type of system would be.