Free To Choose: A Personal Statement – Charter 7 : Who Protects the Consumer?(7)

THE MARKET

Perfection is not of this world. There will always be shoddy prod- ucts, quacks, con artists. But on the whole, market competition, when it is permitted to work, protects the consumer better than do the alternative government mechanisms that have been in- creasingly superimposed on the market.

As Adam Smith said in the quotation with which we began this chapter, competition does not protect the consumer because businessmen are more soft-hearted than the bureaucrats or be- cause they are more altruistic or generous, or even because they are more competent, but only because it is in the self-interest of the businessman to serve the consumer.

If one storekeeper offers you goods of lower quality or of higher price than another, you’re not going to continue to patron- ize his store. If he buys goods to sell that don’t serve your needs, you’re not going to buy them. The merchants therefore search out all over the world the products that might meet your needs and might appeal to you. And they stand back of them because if they don’t, they’re going to go out of business. When you enter a store, no one forces you to buy. You are free to do so or go elsewhere. That is the basic difference between the market and a Who Protects the Consumer? 223 political agency. You are free to choose. There is no policeman to take the money out of your pocket to pay for something you do not want or to make you do something you do not want to do.

But, the advocate of government regulation will say, suppose the FDA weren’t there, what would prevent business from dis- tributing adulterated or dangerous products? It would be a very expensive thing to do—as the examples of Elixir Sulfanilamide and thalidomide and numerous less publicized incidents indicate.

It is very poor business practice—not a way to develop a loyal and faithful clientele. Of course, mistakes and accidents occur— but as the Tris case illustrates, government regulation doesn’t prevent them. The difference is that a private firm that makes a serious blunder may go out of business. A government agency is likely to get a bigger budget.

Cases will arise where adverse effects develop that could not have been foreseen—but government has no better means of pre- dicting such developments than private enterprise. The only way to prevent all such developments would be to stop progress, which would also eliminate the possibility of unforeseen favorable developments.

But, the advocate of government regulation will say, without the Consumer Products Safety Commission, how can the con- sumer judge the quality of complex products? The market’s answer is that he does not have to be able to judge for himself.

He has other bases for choosing. One is the use of a middleman.

The chief economic function of a department store, for example, is to monitor quality on our behalf. None of us is an expert on all of the items we buy, even the most trivial, like shirts, ties, or shoes. If we buy an item that turns out to be defective, we are more likely to return it to the retailer from whom we bought it than to the manufacturer. The retailer is in a far better position to judge quality than we are. Sears, Roebuck and Montgomery Ward, like department stores, are effective consumer testing and certifying agencies as well as distributors.

Another market device is the brand name. It is in the self- interest of General Electric or General Motors or Westinghouse or Rolls-Royce to get a reputation for producing dependable, reliable products. That is the source of their “goodwill,” which 224 may well contribute more to their value as a firm than the fac- tories and plants they own.

Still another device is the private testing organization. Such testing laboratories are common in industry and serve an ex- tremely important role in certifying the quality of a vast array of products. For the consumer there are private organizations like Consumers’ Research, started in 1928, and still in business re- porting evaluations of a wide range of consumer products in its monthly Consumers’ Research magazine; and Consumers Union, founded in 1935, which publishes Consumer Reports.

Both Consumers’ Research and Consumers Union have been highly successful—enough so to maintain sizable staffs of engi- neers and other trained testing and clerical personnel. Yet after nearly half a century, they have been able to attract at most 1 or 2 percent of the potential clientele. Consumers Union, the larger of the two, has about 2 million members. Their existence is a market response to consumer demand. Their small size and the failure of other such agencies to spring up demonstrates that only a small minority of consumers demand and are willing to pay for such a service. It must be that most consumers are getting the guidance they want and are willing to pay for in some other way.

What about the claim that consumers can be led by the nose by advertising? Our answer is that they can’t—as numerous ex- pensive advertising fiascos testify. One of the greatest duds of all time was the Edsel automobile, introduced by Ford Motor Com- pany and promoted by a major advertising campaign. More basically, advertising is a cost of doing business, and the business- man wants to get the most for his money. Is it not more sensible to try to appeal to the real wants or desires of consumers than to try to manufacture artificial wants or desires? Surely it will gen- erally be cheaper to sell them something that meets wants they already have than to create an artificial want.

A favorite example has been the allegedly artificially created desire for automobile model changes. Yet Ford was unable to make a success of the Edsel despite an enormously expensive ad- vertising campaign. There always have been cars available that did not make frequent model changes—the Superba in the United States (the passenger counterpart of the Checker cab), and many Who Protects the Consumer? 225 foreign cars. They were never able to attract more than a small fraction of the total custom. If that was what consumers really wanted, the companies that offered that option would have prospered, and the others would have followed suit. The real objection of most critics of advertising is not that advertising manipulates tastes but that the public at large has meretricious tastes—that is, tastes that do not agree with the critics’.

In any event, you cannot beat something with nothing. One must always compare alternatives: the real with the real. If business advertising is misleading, is no advertising, or govern- ment control of advertising, preferable? At least with private business there is competition. One advertiser can dispute another.

That is more difficult with government. Government, too, en- gages in advertising. It has thousands of public relations agents to present its product in the most favorable light. That advertising is often more misleading than anything put out by private enter- prises. Consider only the advertising the Treasury uses to sell its savings bonds: “United States Savings Bonds . . . What a great way to save!” as the slogan goes on a slip produced by the U.S. Treasury Department and distributed by banks to their cus- tomers. Yet anyone who has bought government savings bonds over the past decade and more has been taken to the cleaners.

The amount he received on maturity would buy less in goods and services than the amount he paid for the bond, and he has had to pay taxes on the mislabeled “interest.” And all this because of inflation produced by the government that sold him the bonds! Yet the Treasury continues to advertise the bonds as “building personal security,” as a “gift that keeps on growing,” to quote further from the same slip.

What about the danger of monopoly that led to the antitrust laws? That is a real danger. The most effective way to counter it is not through a bigger antitrust division at the Department of Justice or a larger budget for the Federal Trade Commission, but through removing existing barriers to international trade.

That would permit competition from all over the world to be even more effective than it is now in undermining monopoly at home. Freddie Laker of Britain needed no help from the Depart- ment of Justice to crack the airline cartel. Japanese and German 226 automobile manufacturers forced American manufacturers to in- troduce smaller cars.

The great danger to the consumer is monopoly—whether pri- vate or governmental. His most effective protection is free com- petition at home and free trade throughout the world. The consumer is protected from being exploited by one seller by the existence of another seller from whom he can buy and who is eager to sell to him. Alternative sources of supply protect the consumer far more effectively than all the Ralph Naders of the world.