APPROPRIATENESS AND RESPONSIVENESS - CAN THE GOVERNMENT PROTECT THE CONSUMER? (FROM CONSUMERISM - SEARCH FOR THE CONSUMER INTEREST, 3D ED., 1978, BY DAVID A AAKER AND GEORGE S DAY - SEE NCJ-47160)

• NCJ Number: 47165
• Author(s): M J GREEN
• Date Published: 1978
• Length: 10 pages
• Corporate Author: Free Press
• Publication Format: Document
• Language: English
• Country: United States of America
• Note: REPRINTED FROM THE JOURNAL OF ECONOMIC ISSUES (JUNE 1974)

Annotation

IT IS ARGUED THAT THE GOVERNMENT'S INITIATIVE ON CONSMER PROTECTION IS JUSTIFIED BECAUSE FREE MARKET ABUSES ARE NOT SELF-POLICING OR SELF-CORRECTING.

Abstract

MILTON FRIEDMAN AND THE CHICAGO SCHOOL OF ECONOMIC THEORY HOLD THAT CONSUMER PROTECTION EFFORTS ON THE PART OF THE FEDERAL GOVERNMENT ARE AN UNWARRANTED AND UNNECESSARY INTRUSION UPON THE PRODUCERS' DOMAIN AND ARE INCONSISTENT WITH FREE MARKET THEORY, WHICH ASSUMES THAT THE MARKET CAN BE A SELF-POLICING, EQUITABLE ALLOCATOR OF GOODS AND SERVICES. THIS PAPER ARGUES THAT FRIEDMAN AND HIS DISCIPLES POSTULATE A THEORETICAL AND NONEXISTENT WORLD IN ORDER TO REBUT THE REAL ECONOMIC STRUCTURE; THEY WEAVE HYPOTHESES, NOT FACTS, AND THEIR FORMULATIONS ARE BEREFT OF THE SERIOUS INSTITUTIONAL RESEARCH AND EMPIRICAL EVIDENCE NECESSARY TO DISTINGUISH BETWEEN FACT AND FANTASY. EXAMPLES OF THE BREAKDOWN OF THE FREE MARKET STRUCTURE AS REGARDS CONSUMER SATISFACTION ARE CITED. HOWEVER, IT IS SUGGESTED THAT GREAT WARINESS SHOULD ACCOMPANY ANY PROPOSED GOVERNMENT REGULATION; REGULATION SHOULD OCCUR ONLY WHERE THE MARKET ALONE IS INCOMPETENT TO PROVIDE GOODS OR SERVICES FAIRLY AND EFFICIENTLY. TWO DIFFERENT FORMS OF CONSUMER PROTECTION CAN BE DISTINGUISHED. THE FIRST INVOLVES ECONOMIC REGULATION, WHERE THE GOVERNMENT ATTEMPTS TO MAKE DECISIONS TRADITIONALLY WITHIN THE COMPETENCE AND INTEREST OF BUSINESS MANAGERS (I.E., PRICE, INVESTMENT, ENTRY, MERGER). THE SECOND INVOLVES HEALTH AND SAFETY REGULATION, WHERE THE GOVERNMENT SUPPLEMENTS MARKET DECISIONS BY ESTABLISHING STANDARDS WHICH PRIVATE FIRMS CANNOT OR DO NOT WANT TO ESTABLISH. IT IS ARGUED THAT ECONOMIC REGULATION PROTECTS NOT SO MUCH CONSUMERS AS PRODUCERS. WHERE COMPETITION COULD PREVAIL BUT FOR THE GOVERNMENT PRESENCE, THERE SHOULD BE DEREGULATION; IN THESE SITUATIONS, IT MAY NOT BE NECESSARY TO PROTECT THE CONSUMER. BUT HEALTH AND SAFETY REGULATION OFTEN INVOLVES ACTIVITIES THAT HAVE NEVER BEEN REFLECTED IN THE COMPETITIVE MARKET. THE GOVERNMENT CAN AND SHOULD ATTEMPT TO PROTECT CONSUMERS FROM FORCES OVER WHICH THEY HAVE NO CONTROL. THERE ARE FOUR AREAS WHERE GOVERNMENT REGULATION SEEMS WARRANTED: SAFETY REGULATION, REGULATION OF NONMARKET EXTERNALITIES, ENABLING REGULATION, AND YARDSTICK ENTERPRISE (WHEN AN INDUSTRY WITHDRAWS FROM A MARKET BECAUSE IT IS PERCEIVED AS UNPROFITABLE). TWO REFORMS TO REDRESS THE IMBALANCE OF BUSINESS VERSUS CONSUMER ADVOCACY ARE SUGGESTED: THE ENCOURAGEMENT OF PUBLIC INTEREST LAW FIRMS AND THE ESTABLISHMENT OF A CONSUMER PROTECTION AGENCY. (KBL)