Chapter 2The Consumer Movement Part 1

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The Consumer MovementOutline

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Introduction

Demographic and Consumption Shifts

Consumerism and the Consumer Movement Defined

Consumer Movement Worldwide

Decades of Consumer Advocacy

Conclusion of the Decades of Consumerism

The Consumer MovementIntroduction

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Adam Smith wrote Wealth of Nations in 1776. He said that consumers will make choices that give them the greatest amount of satisfaction. He was a proponent of the invisible hand (minimizing government intervention in the marketplace).

Rational Self Interest

Adam Smith promoted this concept, meaning that people will make choices that will give them the greatest amount of satisfaction at a particular time based on the information they have at their disposal at the time.

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Rational Choice Theory

It is the dominant theoretical paradigm in Microeconomics.

It assumes that individuals choose the best action according to stable preference functions and constraints facing them.

Although rationality cannot be directly empirically tested, empirical tests can be conducted on some of the results derived from the models.

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HOWEVER….

We know that not all consumption is rational! Give an example of an irrational consumption

decision….

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• Some times we consume because of STATUS.

• Paris now has her own line of clothing. What woman will purchase these products?

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Conspicuous Consumption

When a person pays an extremely high price for a product for its prestige value leading to a much higher demand than a simple price/demand relationship would justify.

Prestige: a high standing achieved through success or influence or wealth etc

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Law violation!!!

Law of Demand: if nothing else changes, consumers will buy a greater quantity of a product at a lower price than at a higher price.

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Price increases, demand is supposed to decrease

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Designer bags…..do they hold more than normal bags?

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Conspicuous Consumption

A means to distinguish between the rich and the poor.

The haves and the have nots. The Jones and the folks trying to keep up

with the Jones.

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Two very different homes..

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Demographics and consumption shifts 1776, US population 2.5 M Today, over 300 M on October 11th 2006 1776……rural dwellers, freedom,

independence 1890 40% of US population had move to

cities, less control over production of goods

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The Consumer MovementIntroduction

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The United States was founded on the free market system, however, by the late 19th century there were situations (e.g., monopolies) that led to the desire for consumer protection.

A monopoly

is defined as a persistent market situation where there is only one provider of a product or service, in other words a firm that has no competitors in its industry. Monopolies are characterized by a lack of economic competition for the good or service that they provide and a lack of viable substitute goods

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1880s Monopolies

Railroads (Pacific Railway Company) Farmers being “railroaded” into using certain lines

Telephones (American Bell Telephone renamed…..AT & T in 1899) Much like Charter today…no other options

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Monopolies

Do not protect consumers Take choice out of consumer’s hands Do not have to provide good/safe/equitable

products…

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The Consumer Movement defined: Policies aimed at regulating products,

services, methods and standards of manufacture, selling, advertising in the interests of the buyer.

Consumer activists demanded safe, reasonably priced, and accurately labeled products, along with the right to complain and be satisfied with products.

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Why do we protect consumers?

In simple terms, consumer protection seeks to identify and address bad goods, bad services, unfair practices for consumers because some consumers cannot protect themselves.

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Examples of at-risk consumers:

Elderly Youth Poor Rich Who else?

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Protection Examples:

• You’ve got to be kidding me….

• First it was E-Coli and now its “Salmonella finding prompts peanut butter recall”

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When do we need protection? Are consumers being discriminated against

on the basis of criteria, such as wealth, class, race or gender, unrelated to cost?

Are consumers obtaining goods and services that are defective in some way for which they did not bargain?

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How do we protect consumers?

Through Consumer Policies. Government sponsored policies.

Through Education. Education is a key tool to prevent consumer injury.

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Consumer Movement Background “Consumer movement consists of the

organized efforts of individual citizens and private, not-for-profit organizations to enhance the rights and collective welfare of consumers” (Herrmann & Mayer, pp. 584)

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Background

“Primary goal of the movement is to advance efficiency and equity in the marketplace” (Herrmann & Mayer, pp. 584).

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The Movement Contains:

People who are motivated by economic issues and seek benefits for themselves Examples?

People who are guided by moral concerns and pursue benefits for others. Examples?

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Consumer Movement is…

Diverse in goals, levels of commitment, & social backgrounds of participants

Exhibits diversity in leadership Demographics Preferred tactics and strategies Ideology – individual responsibility vs. protection

(liquor laws, smoking) Anti-government vs. pro-government

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Ralph Nader

• “Unsafe at Any Speed”• detailing his claims of

resistance by car manufacturers to the introduction of safety features

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Esther Peterson

• workers’ rights • equal pay for equal

work • truth in advertising • nutrition labels and

“sell before” labels for food products.

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Economic vs. Social Regulation “Economic regulations” regulate the price,

entry, exit, & service of an industry. Examples:

Gasoline Long distance telephone prices

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Economic vs. Social Regulation “Social regulations” address health, safety,

employment fairness, environmental quality, and other non-economic questions.

Examples: Job discrimination Clean water/air acts

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In sum:

The consumer movement consists of a broad and loosely coordinated set of individuals and private, not-for-profit organizations that consciously seek to advance the welfare of consumers.

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Consumer Movement World wide US recognized leader… Common link: food and drug regulation Labeling: multiple languages Legislation in one country leads to similar

laws in other countries Information is borderless…..

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Examples:

International Consumer Protection and Enforcement Network

International Consumer Rights Protection Council

FTC Office of International Affairs

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Why do we need International Protection? BEIJING, Jan 24 (Reuters) - China promised on Wednesday to

crack down on illegal imports of foreign garbage after media reports in London said Britain had dumped millions of tons of waste into the country.

Britain's Sunday Mirror said Britain disposed of 1.9 million tons of garbage in China every year, casting a "harsh light on China's booming rubbish imports and their baleful influence" on the environment, the China Daily reported this week.

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Not kidding….

• This quarter of a mile long ship docs in Britain with Chinese goods and then leaves…with UK garbage….

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US exported $60 Billion worth of garbage to China

The Consumer Movement defined:

Policies aimed at regulating products, services, methods and standards of manufacture, selling, advertising in the interests of the buyer.

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Consumer activists demanded safe, reasonably priced, and accurately labeled products, along with the right to complain and be satisfied with products.

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Two Specific At Risk Groups

Women Children

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Women’s Movement

1837: Young teacher Susan B. Anthony asked for equal pay for women teachers.

The first women's rights meeting in the United States, held at Seneca Falls, New York, in 1848, itself followed several decades of a quietly-emerging egalitarian spirit among women.

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SUSAN B. ANTHONY

• was a prominent American Civil Rights leader who played a pivotal role in the 19th century Women’s rights movement to introduce women’s suffrage to U.S.

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LUCY STONE

• First woman in MA to achieve college degree, first woman to marry and keep her own last name.

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Elizabeth Cady

• When Elizabeth Cady married abolitionist Henry Brewster Stanton in 1840, she'd already observed enough about the legal relationships between men and women to insist that the word obey be dropped from the ceremony.

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December 10, 1869: Wyoming territory passed a law permitting women to vote.

1872 Republican Party Platform made reference to Women’s Suffrage.

Susan B. Anthony urged women to vote using the 14th Amendment as the foundation for that right.

November 1872, Anthony and others attempt to vote and get arrested.

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1893 Lucy Stone dies 1902 Elizabeth Cady dies 1906 Susan B. Anthony dies

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Finally on August 26, 1920, the Nineteenth Amendment to the United States Constitution became law, and women could vote in the fall elections, including in the Presidential election.

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First woman to run for President

• 1872 Victoria Woodhull• She became a colorful

and notorious symbol for women's rights, free love, and labor reforms.

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Children’s Movement

The children’s rights movement is a historical and modern movement committed to the acknowledgment, and expansion of the rights of children around the world.

"A child is any human being below the age of eighteen years, unless under the law applicable to the child, majority is attained earlier."

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In the US, the children's rights movement was born in the 1800s with the Orphan Train. In the big cities, when a child's parents died, the child frequently had to go to work to support him or herself. Boys generally became factory or coal workers, and girls became prostitutes or saloon girls, or else went to work in a sweat shop. All of these jobs paid only starvation wages.

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Child Coal Miners……

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Shoe Shiners……..

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Child Labor Reform and the U.S. Labor Movement

1832 New England unions condemn child labor.

1836 First state child labor law 1842 States begin limiting children’s work

days (10 hours only) 1881 Newly formed AFL supports state

minimum age laws (14 yrs)

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This is who you have to blame…. In 1852, Massachusetts required children to

attend school.

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1906

Legislature set the maximum hours of labor for children to 55 a week and adopted a list of dangerous occupations prohibited to children under 16.

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1938

Federal regulation of child labor achieved in Fair Labor Standards Act

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As minors by law children do not have autonomy or the right to make decisions on their own for themselves. Instead their adult caregivers, including parents, social workers, teachers, youth workers and others, are vested with that authority depending on the circumstance the child is in

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Pre-Industrial and Industrial Revolution Marketplace

• Dependence on one’s own skills

• Honesty and competence of local producer– Handshake was as good as a

contract

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Pre-Industrial and Industrial Revolution Marketplace

Last four decades of 19th century rapid industrialization; nationwide markets could no longer depend on past experience to

judge goods; no information upon which to judge new goods entering marketplace

corruption in business and government; corporate schemes to eliminate competition; control prices

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First Era: late 1800--Early 1900s

• 1898 First National Consumer’s League formed (NCL).

• Focused mostly on worker conditions.

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First Era: 1800 Early 1900s

Reformers (middle to upper class) Formed the first Consumer’s League in NYC in

1891 Prepared a “white list” of shops that paid fair

wages, had reasonable hours, and sanitary conditions.

Focused on local social problems and political corruption.

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Would you trust this guy?

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We do…..he’s John Pemberton Invented Coca-Cola as a headache cure. Derived from Peruvian coco leaves and

Africa cola nuts. 1888-1906 Coca-Cola did contain cocaine (9

milligrams)

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Muckrackers

American journalists, who attempted to expose the abuses of business and the corruption in politics. The term derives from the word muckrake used by President Theodore Roosevelt in a speech in 1906, in which he agreed with many of the charges of the muckrakers but asserted that some of their methods were sensational and irresponsible.

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Examples: Mcclure’s Magazine

Standard Oil: bribery, fraud, violence Dr. Harvey Wiley-U.S. Dept of Ag

Food preservation. “Poison Squad” volunteers who were fed food adulterants to see

effect. chemical impurities or substances that by law do not

belong in a food, pesticide, or other substance. Some are added intentionally to lower the manufacturing cost of the product,

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More Muckrackers

Upton Sinclair “The Jungle” fictional expose of the working

conditions of Chicago meat packing houses. Nauseated readers

President Theodore Roosevelt Threw support behind Meat Inspection Act

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First Era: Early 1900sLegislation 1887 - Interstate Commerce Act

address the issues of railroad abuse and discrimination 1890 - Sherman Antitrust Act

prohibit trusts (concentration of economic power in large corporations)

1906 - Pure Food and Drug Act; Meat Inspection Act Ended by: Economic hardship, World War I

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Second Era: 1920s-30s

1920s: incomes rose; advertising, new products; purchasing unfamiliar consumer durables and foods Your Money’s Worth (Chase & Schlink, 1927)

called for product testing. Consumers’ Research (CR) group formed by

Schlink to do product research Ended by: Great Depression

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Second Era: 1930s

Consumer Organizations/Books 1933 - 100,000,000 Guinea Pigs: Dangers in

Everyday Foods, Drugs, and Cosmetics (Kallet & Schlink)

Its central argument propounds that the American population is being used as guinea pigs in a giant experiment undertaken by the American producers of food stuffs and patent medicines and the like.

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Second Era: 1930s

FDA activities and FDR sent message to Congress to strengthen Food & Drug Administration (FDA) 1936 - American Chamber of Horrors FDA exhibit

of unsafe cosmetics and adulterated foods!

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1937 - The Elixir Sulfanilamide disaster was a mass poisoning in the United States. It caused the deaths of more than 100 people. Capsule form was safe, liquid was not. After this manufacturers had to test/prove drug

safety.

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Second Era—1940-1950s

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• Economist John Kenneth Galbraith is known for his liberal views. His book, The Affluent Society, called for less emphasis on production and more on public service. He was a key advisor to John F. Kennedy and was a friend of Esther Peterson, who later became the first special assistant for consumer affairs to President Johnson.

• Advertising became more pervasive with the advent of television.

Second Era: Legislation

1934 - Federal Communications Commission regulates communications by radio, television,

wire, satellite and cable *Janet Jackson’s wardrobe malfunction

1938 - Federal Food, Drug and Cosmetic Act Regulates product ingredients

Ended by: World War II

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Regulating drugs….

The Bayer Company sold heroin as “a superior cough suppressant”

Merck (Germany) offered 800 different products in its catalogue, including quinine, morphine, strychnine and codeine

Edward Robinson Squibb, M.D., founded a company to supply ether and chloroform to the U.S. Navy

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Why include cosmetics?

Countless beauty mavens suffered serious health problems thanks to killer cosmetics like Lash Lure, an aniline eyelash dye introduced in the 1930s that caused 16 cases of blindness and one death and Koremlu, a depilatory cream of the same era that contained rat poison. 

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The Third Era: 1960s and 70s Preceded by the 50s when rapid increase in real income; high

levels of consumption – but consumers wanted to make educated purchases.

Resurgence of interest in consumer education American Council on Consumer Interests established to

encourage fact finding on consumer problems.

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Third Era: 1960s and 1970s

Activities of Government President Kennedy’s Consumer Message in

1962 Enunciated the “Consumer Bill of Rights”:

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Consumer Bill of Rights

the right to safety, to be informed, to choose to be heard by the government in

decision making.

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The Right to Safety

Products offered for sale should not pose undue risk of physical harm to consumers or their families; yet in a recent year, for example, some 33 million people in the U.S. were reported injured—and 30,000 were killed—in product-related accidents. Products that cause injuries include impure food, defectively manufactured automobiles and tires, drugs that have harmful side effects, and unsafe appliances.

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CPSC

The U.S. government agency responsible for the safety of most products is the Consumer Product Safety Commission (CPSC). The CPSC was established in 1972 to protect the public from unreasonable risk of injury caused by consumer products;

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The CPSC is responsible for enforcing the Flammable Fabrics Act (1953), which requires fabrics to meet standards of fire resistance, as well as the Poison Prevention Packaging Act (1970), and the Hazardous Substances Act (1960), which ban the use of certain dangerous substances and require warnings and safety information on the labels of others. The CPSC does not have authority over food, drugs, or motor vehicles.

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FDA

The Food and Drug Administration (FDA) is charged with ensuring that processed foods, drugs, medical devices, and cosmetics are safe and properly labeled; that foods are wholesome; and that drugs are effective.

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FDA

It has the power to seize unsafe products and to criminally prosecute businesses that violate safety laws and standards.

The FDA inspects food-processing plants to be sure that foods are made and packaged under sanitary conditions.

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FDA

The agency must approve the safety and efficacy of all new prescription drugs before they can be marketed. The FDA also sets safety standards for radiation-emitting products such as microwave ovens.

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The Right to Be Informed

Consumers need sufficient information in order to choose wisely among the competing products and services available. The marketplace, however, contains a great many different and complex products, and advertising is usually not informative enough for consumer purposes.

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The Federal Fair Packaging and Labeling Act (1967), for example, requires that packages be labeled truthfully with such basic facts as quantity and ingredients.

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The Federal Truth in Lending Act (1968) requires that consumers be told in clear, accurate, and uniform terms how much it costs them to borrow money from a lender.

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Unit-pricing laws in some states require supermarkets to show the cost of an item per pound, quart, or count (for paper goods), so that shoppers can compare the cost of different sizes of products. Many states require the dating of perishable foods to enable buyers to choose fresh foods.

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Many consumer problems are caused by incorrect or fraudulent information. The Federal Trade Commission (FTC) bears the primary responsibility for making sure that advertising and labeling are not false or misleading.

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The Right to Choose

The structure of the American economic system is based on the belief that, generally, competition is the best regulator of the marketplace. According to this theory, when many companies are selling a product, the effort of each to attract more customers keeps prices at the lowest level that allows businesses to cover costs and make a fair profit.

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The Right to Be Heard

A consumer who has been cheated or who has bought a product or service that does not perform properly has a right to seek a refund, replacement of the product, or other remedy. Sometimes, however, a buyer finds that the manufacturer or seller will not cooperate in resolving the complaint. In recent years laws have been passed to help dissatisfied consumers.

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The Better Business Bureau, a business association, makes information about complaints it has received against businesses available to interested parties.

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Esther Peterson - first appointee to the post of While House Consumer Advisor

Later removed by Ford, reappointed by Carter

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Third Era: 1960s and 1970s

Books/ Individual’s Activities Rachel Carson’s The Silent Spring

(1962) inspired widespread public

concerns with pesticides and pollution of the environment

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DDT banned

DDT was developed as the first of the modern insecticides early in World War II. It was initially used with great effect to combat malaria, typhus, and the other insect-borne human diseases among both military and civilian populations.

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Why was it banned?

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Third Era: Legislation

1960 - Federal Hazardous Substances Labeling Act requires that certain hazardous household

products bear cautionary labeling to alert consumers to the potential hazards

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Third Era: Legislation

1962 - Kefauver-Harris Drug Amendment Required drug companies register with FDA

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Third Era: Legislation

1966 National Traffic and Motor Vehicle Safety Act allowed new standards to be set by the federal government.

1967 - Wholesome Meat Act; State and federal meat inspection

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Third Era: Legislation

1968 Wholesome Poultry Products Act Inspects and grades poultry

1969 - Child Protection and Toy Safety Act Warning labels for age appropriate toys

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Third Era: Legislation

1970 - Credit Card Liability Act; Poison Prevention Packaging Act; Clean Air Act

1972 - Consumer Product Safety Commission established

1974 - Fair Credit Billing Act 1975 - Magnusson-Moss Warranty and

Federal Trade Commission Improvement Act

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Recent Decades – 1980s to 2000 Continued trend toward economic and social deregulation,

market-based approaches, and emphasis on personal responsibility

Some new consumer protection laws primarily in response to events and new technologies creating previously unaddressed consumer problems

Abolishment of the White House Office of Consumer Affairs

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1980s-2000s

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• 1980s saw less government intervention.

• 1990s had little emphasis on consumer protection but environmental issues gained support.

• Attention paid to corporate scandals (WorldCom, Enron) and the need for consumer protection and anti-trust legislation.

Credit CARD Act of 2009

It is comprehensive credit card reform legislation that aims "...to establish fair and transparent practices relating to the extension of credit under an open end consumer credit plan, and for other purposes.“ Regulates Interest rate hikes Sets Fee caps Sets Age limits Controls Funky wording Prevents double cycle billing

Patient Protection and Affordable Care Act (PPACA) of 2010 The PPACA reforms certain aspects of the

private health insurance industry and public health insurance programs, including increasing insurance coverage of pre-existing conditions and expanding access to insurance to over 30 million Americans

*being challenged in state courts as to the constitutionality of the Act.

Consumer Financial Protection Bureau (CFPB) July 21, 2011 Elizabeth Warren was

chosen by President Barack Obama last year to set up the new Consumer Financial Protection Bureau.

former Ohio Attorney General Richard Cordray will be the director.

Enjoy the rest of the day