Plain Crooked

18 October 2004


Marsh & McLennan Companies Sued for Cheating Customers

Insurance brokers Marsh & McLennan Companies, which is owned by insurance giant American International Group, found itself on the receiving end of New York State Attorney General Eliot Spitzer’s subpoena-writing pen last week. The NYSAG alleges that M&M gave steered clients to insurers who paid “contingent commissions” (“kickbacks” to some) rather than to the insurer who offered the most advantageous rate. Insurance stocks tumbled, M&M has suspended all contingent commissions, and Mr. Spitzer’s chances of being Governor of New York improved. Above all, this incident proves that Adam Smith was right – markets need regulation.

In his 1776 book An Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith laid out the bible for modern day economic liberals. Floating exchange rates, free trade zones, and more didn’t exist when the book came out, but its logic underpins NAFTA, the WTO and the European Union. What is most interesting is, like most scripture, the adherents of a particular sect have a habit of reading only those parts that suit their interests.

In the case of the corporate capitalists in North American and Europe, government regulation is the reason markets haven’t solved the world’s problems. According to this gospel, if the lawyers and politicians (but oddly never the lobbyists and in-house counsel) would just get out of the way, the talented and ambitious would be freed to create an abundance of wealth. The poor would deserve their condition because they are lazy, and justice would prevail.

In the book, though, the great Scotsman warns that concentration of wealth hurts the workings of the economy, that the economy he was describing worked best as a local entity in which owner-managers operated. Above all, he warned that businessmen will, whenever possible, try to maximize their profits by working together against their customers.

This is exactly what M&M is accused of doing. Clients got higher rates than they should have received, the insurer paid M&M to betray the clients’ trust, and the other insurers bidding for the work kept quiet because they were the favored bidder in other deals. The invisible hand strikes again.

© Copyright 2004 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.

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