The Moral Menace of Proposition 103
By Peter Schwartz
In Ayn Rand's novel Atlas Shrugged, a number of businessmen rebel against the injustice of being denounced and regulated by a society that regards profit-making as evil. They go on "strike." They refuse to continue creating the wealth for a society which believes that those who need it have a right to it while those who produce it do not. They repudiate the altruist creed of self-sacrifice, which demands that they work not for their own private benefit, but for that of the "public." That scenario was fiction. But in California today, a real-life phenomenon is taking place that is tragically similar--and, simultaneously, tragically different.
In November, the voters of California approved Proposition 103, which is a rabble-rousing assault upon the profits of the insurance industry. Backed by Ralph Nader, the proposition requires each company to reduce its rates on property and casualty insurance to a level 20 percent below what it charged in November of 1987. It forbids rate increases without prior approval by the insurance commissioner, who is empowered to convene public hearings to consider the "merits" of proposed increases. It commands insurance companies to renew all existing policies (except, basically, in cases of fraud or non-payment of premiums) regardless of the policies' economic profitability.
When simple arithmetic reveals the obvious fact that a business cannot exist if forced to live on income of years past while having to meet the costs of today--when simple economics shows that no company can long survive if it is compelled to provide insurance coverage that is unprofitable--when simple logic says that the inevitable result of Proposition 103 will be to drive companies out of business and to make insurance coverage as difficult to obtain as meat in Russia--one has to ask: what is the real motive behind this proposal?
Nader and his ilk are not interested in the reasons behind the relatively high insurance prices in California (such as the fact of California's extraordinarily high rate of lawsuits filed per auto accident)--they merely seek to vent their hostility toward a free market by crushing the alleged evil profits. They do not care how or whether the industry will survive--they simply want to place it under the domination of the state. They want businesses to come begging for permission to exist, which is why Proposition 103 exempts from its provisions those companies that somehow manage to demonstrate--to the satisfaction of the insurance czar, and with no objective standards of proof--a "substantial threat of insolvency."
Not only are insurance companies to be placed in thrall to this new bureaucracy, but they are to be made to finance it as well. The industry is to be assessed the money necessary to subsidize the administrative costs of this revamped Department of Insurance. Even worse, the industry will be forced to pay all fees and expenses--as determined by the insurance commissioner--of anyone who takes part in the public rate hearings, as long as such participant "represents the interests of the consumers" (i.e., opposes the rate-increase requests). And worse still, the companies must actually pay an additional tax to make up for all the insurance taxes the state will lose due to the lower revenues flowing to the industry.
Proposition 103 represents, not a naive hope for making insurance coverage available to more people, but a savage desire for power and control. The Naderites want first to make the functioning of private insurance companies economically impossible; then they want to make the companies plead for government favors; finally, they want to be able to declare that free enterprise had been given its chance and has failed, and that it is therefore time for a complete state takeover.
After Proposition 103 passed, the insurance companies did exactly what anyone facing a loaded gun would do in self-defense: they tried to flee for their lives. Many firms announced that they would no longer issue policies under such dictatorial conditions and that they would stop doing business in California. But the proponents of Proposition 103, exhibiting the very depths of moral corruption, had the audacity to become indignant. They condemned the companies as "terrorists" and "extortionists" for not volunteering to engage in self-immolation. The public has a "right" to be insured--they insisted--regardless of whether the industry is willing to provide the desired services or not. They are now threatening to enact legislation that imposes fines and even prison terms upon any insurance company guilty of the crime of ceasing to do business in California.
The insurance industry is guilty--not because its profits are too great, but because its ability to morally justify them is so small. And this is the tragic difference between the businessmen's unequivocal withdrawal of their moral sanction in Atlas Shrugged and the feeble attempt at a "strike" on the part of the California insurance industry. Instead of standing up categorically for their right to sell their services for whatever price their customers are willing to pay--instead of denouncing Proposition 103 as theft and enslavement--it is trying to apologize for its profits and to appease its ideological enemies. The proposition is "well-intentioned," says the 20th Century Insurance Co., but will, alas, produce undesired results. State Farm answers the charge that "insurance company profits are excessive" by declaring that "profits in 1987 [the best year since 1981] were below the average for corporate America." According to a spokesman for the Association of California Insurance Companies (the industry's chief lobbying arm), there are no fundamental differences between the two sides, and compromise is the answer to the problem: "We intend to work with the Legislature to resolve these issues to the benefit of California consumers."
What the insurance business needs is a moral defense. What it needs are the intransigent words of Ayn Rand's protagonist Hank Rearden in Atlas Shrugged. Rearden is on trial for the "crime" of manufacturing and selling his goods for private profit rather than for the "public interest." The dialogue between one of the trial judges and Rearden could not be more fitting:
"Are we to understand [the judge asks] that if the public deems it necessary to curtail your profits, you do not recognize its right to do so?"
"Why, yes, I do. The public may curtail my profits any time it wishes--by refusing to buy my product."
"We are speaking of...other methods."
"Any other method of curtailing profits is the method of looters--and I regard it as such."
Rearden sums up his position:" "I work for nothing but my own profit--which I make by selling a product they need to men who are able and willing to buy it. I do not produce it for their benefit at the expense of mine, and they do not buy it for my benefit at the expense of theirs; I do not sacrifice my interests to them, nor do they sacrifice theirs to me; we deal as equals by mutual consent to mutual advantage--and I am proud of every penny that I have earned in this manner."
If there were some insurance spokesmen willing to make such a statement today, they could save their industry--and every rational individual in this country--from the growing tyranny of the "public interest."
Peter Schwartz, author of The Foreign Policy of Self-Interest, is a distinguished fellow at the Ayn Rand Institute in Irvine, Calif. The Institute promotes Objectivism, the philosophy of Ayn Rand--author of Atlas Shrugged and The Fountainhead.
For more articles by Peter Schwartz, and his bio, click here.