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Thursday, July 18, 2019

ANALYSIS/OPINION:

Much has been made of the United States’ slippage in various measures of economic freedom, but not enough has been said about why.

The United States slipped to 12th this year in the Heritage Foundation’s Index of Economic Freedom. It is now well behind countries such as the United Kingdom, Ireland and Canada — all with economic and trade policies that would seem to put them on the far left of the American political continuum.


The United States is getting battered for its out-of-control spending and fiscal health, but it also lags in what could be called the “rule of law” categories. It trails the U.K. by 13 points on a 1-to-100 scale in terms of protecting property rights. It is eight points behind in judicial effectiveness — a measure of fairness in the courts and in the application of laws. In government integrity, it is six points behind.

Among other things, this means the United States scores should go up this year thanks to the crisis at the U.S.-Mexico border. The backlog of cases there now exceeds 300,000 because the United States has decided to equally and equitably enforce the immigration laws on the books — not jointly with a declaration that none of the applicants are eligible for asylum, but individually, case-by-case, as the law provides.

The same is happening with big tech. The Democrat-led House Judiciary Committee has announced what the Associated Press called a “sweeping antitrust probe of unspecified technology companies that includes a ‘top-to-bottom review of the market power held by giant tech platforms,’ which would be the first such action Congress has ever undertaken.”

European authorities are way ahead in curbing market excesses of Google and others, having issued fines totaling in the billions of dollars. But the new investigation and divvying up of power between federal agencies suggest the laws in this area are likely to get enforced in a way they haven’t for some time.

Federal, state and local regulators and law enforcement officials have taken action recently against direct selling companies, forcing the industry to consider increasing the standards by which it operates. The actions of these regulators suggest they are providing guidance or a pathway for direct selling companies to follow to preserve the $35 billion industry, but in most cases have indicated they are giving the industry some leeway to adopt to increased standards — for now.

There are calls now for leveling the playing field among direct selling firms, such as Avon, Mary Kay and Amway. The Federal Trade Commission (FTC) has established a model for how it will enforce trade law among these companies.  But after some firms underwent significant and expensive changes to satisfy regulators, others in the market are ignoring the industry standards. Some in the direct-selling business don’t accept the higher standard set by Herbalife back in 2016 when the nutrition company agreed to increase protections for customers.

Advocare agreed to changes after regulators threatened to take judicial action against their existing business model. That is, Advocare felt they were better off leaving the direct selling platform rather than take their chances fighting the changes.  

LuLaRoe sells women’s clothes at modest prices, but it requires distributors, who sell at house parties organized to display the clothes, to carry large inventories. This seems a reasonable accommodation, but the attorney general of Washington state, Robert Ferguson, has filed an injunction charging that LuLaRoe operates an illegal pyramid scheme, made false and misleading earnings claims and violated other state consumer protection laws.

Actual enforcement of the laws is good, but there appears to be another agenda at work. An organization known as the Direct Selling Association is attempting to impose standards on the industry and is working with regulators, such as those in Washington state, to hold non-members, such as LuLaRoe, in violation of its standards and thus, it implies, the state’s laws or what should be the state’s laws.

LuLaRoe has been around since 2012 — long enough that distributors know what they are getting into with the firm and have ample ways of finding out about it before jumping in. The Direct Sales Association should be able to recruit members, but it should not be able to use state regulatory agencies to punish those who don’t join.

This is the kind of cronyism that causes the United States to stumble economically at times and to lose ground on measures such as the Index of Economic Freedom. If what LuLaRoe or others is doing is illegal by the standards enforced on all similarly situated companies, then enforcement is appropriate. But if the purpose of the enforcement is to legitimize a trade organization and use its standards as a blunt tool against otherwise legally operating companies, that’s not justice and it’s not OK.  

• Brian McNicoll, a freelance writer based in Alexandria, Va., is a former senior writer for the Heritage Foundation and former director of communications for the House Committee on Oversight and Government Reform.


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