World Economic Forum
12 September 2009
Protecting Consumers in the Global Economy
‘Not all opposition to global trade can be attributed to protectionism, as consumers'
concern over imports has increased significantly in the wake of safety issues linked
to tainted food, drugs and toys.
In an era of global commerce, how can government and industry work together to
ensure that poor product safety does not become a barrier to global trade?’
Connie Lau
Chief Executive
Hong Kong Consumer Council
Introduction
Hong Kong has a reputation for being one of the most open markets in the world which is not fettered by excessive regulation. A common refrain that consumers hear from critics of government regulation is that the free market is the best means of delivering what consumers want; and that the market is well equipped to regulate itself. In effect, what they are saying is “trust us”.
The critics of government regulation point to the role that information, through trial and error, or word of mouth etc. plays in the market to inform consumers of products to be avoided. The inevitable result, we are told, is that the producers of faulty products will either correct the faults or will exit the market. Alternatively, we are told that the market will itself create product safety accreditation schemes, that consumers can trust and use as a basis for making correct purchasing decisions.
Can the market be trusted?
Sadly, experience has taught us that neither market information, nor industry self regulation can be guaranteed to deliver the level of protection that consumers expect. If anything, there is increased concern by consumers; particularly in areas where there is little or no government regulation.
There are problems in relying on market information to ensure consumer safety. Markets do not supply optimal information about the risks associated with certain products.
First, consumers are not always repeat purchasers where they can learn about the range of products vailable through trial and error. Moreover, their purchase of an unsafe product might be the only one - and a danger ous or fatal one at that.
Second, there is no guarantee that competitors will keep each other honest by drawing consumers’attention to the potential dangers of using someone else’sproduct. While there may be some competitors who will disparage other products and attempt to highlight problems, such action would likely attract unwelcome legal action from the competitor whose products are being disparaged. And in any event,making a fuss about potential dangers of using a certain product could backfire against legitimate producers because consumers might begin restricting their purchases, or stop altogether because of general uncertainty in the products as a whole.
As for industry self regulation, we have recently witnessed what has been a catastrophic failure of a lightly regulated finance industry to manage itself, and examples of downright criminality in that sector and others where industry executives have blatantly lied and cheated in their pursuit of market success. I think it is reasonable to say that in the current environment there is a general level of distrust in industry that permeates the economy as a whole. The old adage that “one bad apple spoils the whole bushel” unfortunately comes to mind.
And, as if this is not bad enough, we now have a situation where
- critics of government regulation not only decry the intervention of government in the market, but also claim that the enforcement of product safety standards are being used as a de facto trade barrier; and
- trans national corporations that distribute unsafe products manufactured in developing economies blame the manufacturers in an attempt to absolve themselves from fault. Sometimes it is even sugges ted that the pressure from consumers to keep prices low forces them to ha ve their products manufactured in countries where there is difficulty monitoring quality control processes. In effect they are attempting to shift blame onto consumers.
Recent problems
Consumers International is constantly exposing, through the work of its members in countries around the world, examples of unsafe products1. The more notable and infamous cases in the past have been
- 21 million toys with high lead content Mattel had to remove from the market in all regions of the world
- Disney toys that posed a choking risk to children; and
- Bindeez toys that had beads, which when ingested,caused the hospitalization of children.
In Hong Kong, just this year, the Consumer Council has had to warn consumers of unsafe toy face paint, melamine ladles, and cosmetic creams. These have required the intervention of government authorities to admin ister regulations previously established to protect consumers, and which had to be introduced in the face of criticism by some business sectors2
Conclusion
What the critics of product safety standards fail to understand is that general distrust by consumers, borne through bad experience, leads to a reluctance to experiment in purchases of imported goods. This in itself is a barrier against certain products, and a barrier that is created by the manufacturers and distributors themselves. It is a barrier that they cannot blame on anyone but themselves.
The solution for industry is that consumers need strong assurances that they are being protected. While the level of government effectiveness in the construction of appropriate standards, and in the policing of those standards might be under question at times, consumers nevertheless feel as though governments are more responsive, and quicker in responding to their concerns than the market.
Governments have a critical obligation to ensure that adequate product safety standards exist, and that they are strongly enforced. They also have a strong incentive to respond quickly when there are public safety concerns, so as not to jeopardize their political interests.
The consumer movement has a role in disseminating information to consumers on unsafe products. It also has a role in lobbying government on ways to improve regulation, and reminding the business sector that their reputation in the community needs to be carefully upheld, otherwise it be can be very quickly shattered.
Ultimately, businesses must realise that the market place is not an abstraction that is merely about buying and selling. Markets exist within a social order that has values beyond the simple act of making a profit. Markets also serve the needs of citizens that have basic rights to safety.
Society expects that market participants observe standards to uphold those wider values. It doesn’t matter how good a market operates in terms of providing better prices, choices and quality, if it consistently fails society in its wider desires.
It is the duty of businesses to recognise their social responsibility and to earn the trust of consumers. In particular it is the duty of trans national companies to be the gatekeepers of the quality of their products, no matter where the products are manufactured, instead of putting the blame on the countries where the products are made.
1http://www.consumersinternational.org/Templates/Internal.asp?NodeID=97253
2http://www.consumer.org.hk/website/ws_en/search.jsp?q=unsafe+products&Image33.x=8&Image33.y=8