Tuesday, 2 December 2008

Standards versus consumer affairs

Given the importance of standards it is reasonable to argue there should be a portfolio and minister assigned to this. New Zealand has a Ministry of Consumer Affairs which covers much of this. Unfortunately the structural organisation is such that different issues are at risk of being conflated. The hierarchy is
  1. Ministry of Economic Development
  2. The Ministry of Consumer Affairs
  3. Measurement and Product Safety Service
  4. Trade Measurement
Standards are not an issue of economic development, they are an issue of honesty. That it may lead to economic growth is a side issue. Consumer Affairs covers a variety of related and unrelated issues. Measurement and Product Safety is an umbrella group for both measurement (i.e definitional standards), and safety issues and minimum standards (possibly important but a separate issue). I would favour expanding trade measurement to cover all relevant measures and making it a separate portfolio.

Confusion in this area of ensuring standards is seen in the Briefing to Incoming Ministers.
The practical implications of this structure is that Consumer Affairs has a special identity as the Ministry with a focus on creating an environment in which consumers can transact with confidence, and also works within a broader sustainable economic development framework.
One can attempt to encourage confident transactions without being involved in economic development. One can ensure market transactions are honest without trying to manipulate the market.
One outcome was that the focus of consumer policy should be on creating the conditions in which consumers can "transact with confidence". In practice this means that consumers should get what they reasonably expect from a purchase and, if not, have access to redress.

Transacting with confidence is not just important for the individual, it is also essential to a thriving, innovative and sustainable economy. When consumers demand higher quality products and services, make effective choices among the offerings of competing suppliers and seek satisfaction when their purchasing expectations are not met, they can stimulate greater economic efficiency and innovation.
The first paragraph is reasonable, so long expectation is in line with what was offered. But we desire this not because it leads to a thriving economy, rather because the alternative is fraudulent transactions. The error is apparent in the further comment.
For example, information barriers are a significant reason why consumers do not get what they expect when making a purchase and this has led to an emphasis on information disclosure as a principal regulatory tool. However, consumers do not always respond as expected when better information is available to them. Behavioural economics may offer new insights into consumer behaviour.
Information is exactly what is needed. But there is not necessarily any state expectation concerning consumers. The government shouldn't care if the demand is for higher or lower quality, the quality margin may not exceed the monetary margin. I don't want the government telling me what I should and should not buy. And not recognising that there are different issues here may lead the ministry to focus on economic manipulation and growth rather than honesty. If fraudulent behaviour leads to economic growth, why forbid it?

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