Consumers first

Consumers International began life in 1960, around the same time as the OECD, with a mission to represent the rights of users of products and services throughout the world.

It started with six members but now has more than 200 in 110 countries, as well as over 50 government consumer agencies in affiliate membership. Consumer rights have improved in 40 years, says Louise Sylvan, but there remain serious challenges, not least in improving corporate behaviour.

The backlash against recent corporate misbehaviour and corporate arrogance in our developed economies has been profound. The reputations of “big business” have never been lower and trust in them (which was not all that high in any case) has never been weaker.

The arrogance is the fundamental problem. It manifests itself in legal, yet immoral, acts, such as imposing the severe effects of market liberalisation on others while corporate “leaders” reap greedily for themselves, and in an attitude that they, rather than consumers, are “king” in the market.

Take the debate about genetically modified (GM) food: not, as its promoters would have us believe, an ignorant and irrational response driven by wild anti-science radicals, but a deep reaction by consumers to manipulation and misinformation from self-interested businesses. It’s a salutary warning because the issues raised by GM foods are not principally about personal safety for consumers but about broader public interest dimensions – environmental contamination, patents on life forms, biological and agricultural diversity, control over the global food supply, etc.

At one level, consumer protection has moved forward very well over the last 40 years. Comprehensive legislation is in place, not only in OECD countries – where it has gradually been tightened up over the years – but in more and more other countries as well. In Latin America, for example, consumer protection is now commonplace, inspired in many countries by a framework “model law” drafted by Consumers International. Africa is now starting to follow the same path. A little known feature of the transition of China to a market economy is that it has established a comprehensive network of consumer advice centres, supported by the umbrella Consumers Association of China.

The growth of the consumer movement and the development of legislation and enforcement agencies reflects widespread recognition of the concept of consumer rights. US president, John F Kennedy (who played a key role in setting up the OECD) first articulated some specific rights back in 1962, but the international community accepted their fundamental importance in 1985 with the adoption of the UN Guidelines on Consumer Protection. These were extended in 1999 to include sections on sustainable consumption.

Most of the legislation, and indeed the guidelines, have a social objective, aiming to protect individual consumers against exploitation by better-resourced and informed business. Most emphasis in the academic debate and government policies about economic development has been about the supply side – encouraging investment, concern about “red tape”, tax and tariff policies and incentives, the effects of employment laws and so on. But markets do not work just because there are suppliers. Effective markets depend on competition, and this in turn requires knowledgeable, demanding consumers, willing and able to make discriminating choices in their acquisition of both products and services. Developed economies are well aware of this and generally have strong consumer as well as competition protection regulators.

Nevertheless, over the last 25 years the process of balancing the benefits of the market with public interests from economic activity has taken backward steps. Radical economic theorists have successfully promoted the cause of small government and unfettered markets, limited only by self-regulation. In many parts of the world liberalisation has simply replaced public monopolies with private ones, to the profound detriment of consumers in the absence of a strong regulatory framework. Meanwhile self-regulation has become a byword for non-regulation, characterised by an absence of sanctions, and a striking absence of government legislators batting for broader public interests. What has been true of national governments has often been reflected in some of the international agencies, most notably the World Bank and the IMF, but also the OECD.

The developing world in particular has been subjected to profoundly anti-consumer policies which have imposed unrestricted market solutions on communities that lack the experience, skills or knowledge to deal with them. The consumer movement is not anti-market, anti-business, or anti-liberalisation. But it does say that economic activity must ultimately serve consumers and that left to itself private enterprise fails this condition. That’s why there are competition and consumer protection laws and why governments need to ensure that consumers are given countervailing power in the market through, for example, disclosure laws, mandatory product safety and quality standards, and statutory dispute resolution structures. A business’s objective is profit and this is most easily secured not by competing but by limiting competition and as far as possible exploiting consumers through high prices and/or by supplying sub-standard goods and services. This has ever been the case and continues to be the case where governments have failed in their appropriate interventions. It is now many centuries since governments began to introduce the earliest consumer protection measures – to prevent adulteration of food, debasement of precious metals, short weight and so on. To these issues can be added the grander and more sophisticated manipulations indulged in today, like corporate fraud, privileged distribution arrangements as in the European car industry (now slowly changing), and global price cartels for vitamins.

Markets require effective consumers. But they have also to rely on fair and decent business practices meeting minimum standards of safety, honesty, transparency and genuine competitiveness; without appropriate laws and enforcement in place, consumer choice as the ultimate driver of market behaviour cannot work properly.

As well as the recognition of rights, the consumer movement places a very strong emphasis on equity. Consumer information and education is directed at achieving this by increasing the knowledge and skills of consumers in relation to business – in other words, to create a better balance in market “power”. But the first consumer right is that of access to the means of meeting basic needs, and this requires the public management of at least parts of a market economy to protect the weak and marginalised.

Ensuring the rights of all consumers requires a profound change in the way agencies, governments and corporations see their role. Many corporate leaders, at least in private, endorse the need for business to build public benefit objectives into their plans and operations. In my experience, only a very few translate this into practice, and only then if there is a clear need to build consumer confidence in a business interest – for example, in the security of on-line purchasing. Mostly, profits come first and it is more usual to find firms confident that they can “manage” consumer interests and requirements without any kind of regulatory framework, whether government imposed or industry agreed.

Governments’ stubborn belief in unfettered markets has enabled the recent crisis of corporate misbehaviour. And government attitudes will no doubt be exemplified by ineffectual US government action against Enron and others.

But we will see a change. The NGO community has strengthened immeasurably in the last decade, partly in response to weaker governments. But it also reflects a strong public distaste for corporate excess, and recognition that economic activity has consequences for all of us, not just the buyer and seller. Moreover, modern media and communications have helped to produce a global consumer community which is just beginning to understand its ability to influence.

Which returns me to the GM story. It has become a “litmus test” for ensuring proper public accountability for the actions of private enterprise. Governments as well as GM producers take note: “the bottom line made me do it” just doesn’t wash as an excuse any more.

©OECD Observer No 235, December 2002

Economic data

GDP growth: +0.6% Q1 2019 year-on-year
Consumer price inflation: 2.3% May 2019 annual
Trade: +0.4% exp, -1.2% imp, Q1 2019
Unemployment: 5.2% July 2019
Last update: 8 July 2019

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