The Consumer Movement


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The Consumer Movement

  1. 1. Chapter 2The Consumer MovementPart 1 HACE 3100 1
  2. 2. The Consumer MovementOutline Introduction Demographic and Consumption Shifts Consumerism and the Consumer Movement Defined Consumer Movement Worldwide Decades of Consumer Advocacy Conclusion of the Decades of Consumerism HACE 3100 2
  3. 3. The Consumer MovementIntroduction 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). HACE 3100 3
  4. 4. 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. HACE 3100 4
  5. 5. 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. HACE 3100 5
  6. 6. HOWEVER…. We know that not all consumption is rational! Give an example of an irrational consumption decision…. HACE 3100 6
  7. 7. • Some times we consume because of STATUS.• Paris now has her own line of clothing. What woman will purchase these products? HACE 3100 7
  8. 8. 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 HACE 3100 8
  9. 9. 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. HACE 3100 9
  10. 10. Price increases, demand is supposed to decrease HACE 3100 10
  11. 11. Designer bags… they hold more thannormal bags? HACE 3100 11
  12. 12. 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. HACE 3100 12
  13. 13. Two very different homes.. HACE 3100 13
  14. 14. 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 HACE 3100 14
  15. 15. The Consumer MovementIntroduction 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. HACE 3100 15
  16. 16. 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 HACE 3100 16
  17. 17. 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 HACE 3100 17
  18. 18. Monopolies Do not protect consumers Take choice out of consumer’s hands Do not have to provide good/safe/equitable products… HACE 3100 18
  19. 19. 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. HACE 3100 19
  20. 20. 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. HACE 3100 20
  21. 21. Examples of at-risk consumers: Elderly Youth Poor Rich Who else? HACE 3100 21
  22. 22. Protection Examples:• You’ve got to be kidding me….• First it was E-Coli and now its “Salmonella finding prompts peanut butter recall” HACE 3100 22
  23. 23. 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? HACE 3100 23
  24. 24. How do we protect consumers? Through Consumer Policies.  Government sponsored policies. Through Education.  Education is a key tool to prevent consumer injury. HACE 3100 24
  25. 25. 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) HACE 3100 25
  26. 26. Background ―Primary goal of the movement is to advance efficiency and equity in the marketplace‖ (Herrmann & Mayer, pp. 584). HACE 3100 26
  27. 27. 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? HACE 3100 27
  28. 28. 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 HACE 3100 28
  29. 29. Ralph Nader• “Unsafe at Any Speed”• detailing his claims of resistance by car manufacturers to the introduction of safety features HACE 3100 29
  30. 30. Esther Peterson• workers’ rights• equal pay for equal work• truth in advertising• nutrition labels and “sell before” labels for food products. HACE 3100 30
  31. 31. Economic vs. Social Regulation ―Economic regulations‖ regulate the price, entry, exit, & service of an industry. Examples:  Gasoline  Long distance telephone prices HACE 3100 31
  32. 32. 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 HACE 3100 32
  33. 33. 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. HACE 3100 33
  34. 34. 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….. HACE 3100 34
  35. 35. Examples: International Consumer Protection and Enforcement Network International Consumer Rights Protection Council FTC Office of International Affairs HACE 3100 35
  36. 36. 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. Britains Sunday Mirror said Britain disposed of 1.9 million tons of garbage in China every year, casting a "harsh light on Chinas booming rubbish imports and their baleful influence" on the environment, the China Daily reported this week. HACE 3100 36
  37. 37. Not kidding….• This quarter of a mile long ship docs in Britain with Chinese goods and then leaves…with UK garbage…. US exported $60 Billion worth of garbage to China HACE 3100 37
  38. 38. The Consumer Movement defined: Policies aimed at regulating products, services, methods and standards of manufacture, selling, advertising in the interests of the buyer. HACE 3100 38
  39. 39.  Consumer activists demanded safe, reasonably priced, and accurately labeled products, along with the right to complain and be satisfied with products. HACE 3100 39
  40. 40. Two Specific At Risk Groups Women Children HACE 3100 40
  41. 41. Women’s Movement 1837: Young teacher Susan B. Anthony asked for equal pay for women teachers. The first womens 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. HACE 3100 41
  42. 42. 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. HACE 3100 42
  43. 43. LUCY STONE• First woman in MA to achieve college degree, first woman to marry and keep her own last name. HACE 3100 43
  44. 44. Elizabeth Cady• When Elizabeth Cady married abolitionist Henry Brewster Stanton in 1840, shed already observed enough about the legal relationships between men and women to insist that the word obey be dropped from the ceremony. HACE 3100 44
  45. 45.  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. HACE 3100 45
  46. 46.  1893 Lucy Stone dies 1902 Elizabeth Cady dies 1906 Susan B. Anthony dies HACE 3100 46
  47. 47.  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. HACE 3100 47
  48. 48. First woman to run for President• 1872 Victoria Woodhull• She became a colorful and notorious symbol for womens rights, free love, and labor reforms. HACE 3100 48
  49. 49. 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." HACE 3100 49
  50. 50.  In the US, the childrens rights movement was born in the 1800s with the Orphan Train. In the big cities, when a childs 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. HACE 3100 50
  51. 51. Child Coal Miners…… HACE 3100 51
  52. 52. Shoe Shiners…….. HACE 3100 52
  53. 53. 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) HACE 3100 53
  54. 54. This is who you have to blame…. In 1852, Massachusetts required children to attend school. HACE 3100 54
  55. 55. 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. HACE 3100 55
  56. 56. 1938 Federal regulation of child labor achieved in Fair Labor Standards Act HACE 3100 56
  57. 57.  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 HACE 3100 57
  58. 58. 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 HACE 3100 58
  59. 59. HACE 3100 59
  60. 60. 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 HACE 3100 60
  61. 61. First Era: late 1800--Early 1900s• 1898 First National Consumer’s League formed (NCL).• Focused mostly on worker conditions. HACE 3100 61
  62. 62. 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. HACE 3100 62
  63. 63. Would you trust this guy? HACE 3100 63
  64. 64. 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) HACE 3100 64
  65. 65. 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. HACE 3100 65
  66. 66. 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, HACE 3100 66
  67. 67. 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 HACE 3100 67
  68. 68. 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 HACE 3100 68
  69. 69. 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 HACE 3100 69
  70. 70. 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. HACE 3100 70
  71. 71. 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! HACE 3100 71
  72. 72.  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. HACE 3100 72
  73. 73. Second Era—1940-1950s• Economist John Kenneth Galbraith is known for his liberalviews. His book, The Affluent Society, called for less emphasison production and more on public service. He was a keyadvisor to John F. Kennedy and was a friend of Esther Peterson,who later became the first special assistant for consumer affairsto President Johnson.• Advertising became more pervasive with the advent oftelevision. HACE 3100 73
  74. 74. 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 HACE 3100 74
  75. 75. 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 HACE 3100 75
  76. 76. 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. HACE 3100 76
  77. 77. 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. HACE 3100 77
  78. 78. Third Era: 1960s and 1970s Activities of Government  President Kennedy’s Consumer Message in 1962  Enunciated the ―Consumer Bill of Rights‖: HACE 3100 78
  79. 79. Consumer Bill of Rights  the right to safety,  to be informed,  to choose  to be heard by the government in decision making. HACE 3100 79
  80. 80. 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. HACE 3100 80
  81. 81. 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; HACE 3100 81
  82. 82.  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. HACE 3100 82
  83. 83. 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. HACE 3100 83
  84. 84. 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. HACE 3100 84
  85. 85. 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. HACE 3100 85
  86. 86. 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. HACE 3100 86
  87. 87.  The Federal Fair Packaging and Labeling Act (1967), for example, requires that packages be labeled truthfully with such basic facts as quantity and ingredients. HACE 3100 87
  88. 88.  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. HACE 3100 88
  89. 89.  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. HACE 3100 89
  90. 90.  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. HACE 3100 90
  91. 91. 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. HACE 3100 91
  92. 92. 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. HACE 3100 92
  93. 93.  The Better Business Bureau, a business association, makes information about complaints it has received against businesses available to interested parties. HACE 3100 93
  94. 94.  Esther Peterson - first appointee to the post of While House Consumer Advisor Later removed by Ford, reappointed by Carter HACE 3100 94
  95. 95. 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 HACE 3100 95
  96. 96. 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. HACE 3100 96
  97. 97. Why was it banned? HACE 3100 97
  98. 98. 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 HACE 3100 98
  99. 99. Third Era: Legislation 1962 - Kefauver-Harris Drug Amendment  Required drug companies register with FDA HACE 3100 99
  100. 100. 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 HACE 3100 100
  101. 101. 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 HACE 3100 101
  102. 102. 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 HACE 3100 102
  103. 103. 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 HACE 3100 103
  104. 104. 1980s-2000s • 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. HACE 3100 104
  105. 105. Credit CARD Act of 2009 It is comprehensive credit card reform legislation that aims " 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
  106. 106. Patient Protection and AffordableCare 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.
  107. 107. 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.
  108. 108. Enjoy the rest of the day 