Chapter 15 Consumerism McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Harvey W. Wiley o In the late 1800s, Harvey W. Wiley, a professor at Purdue University, began working with Indiana state officials to detect adulteration in food products o A large, highly competitive food industry applied new food chemistries using preservatives, colorings, flavorings, texturizers, and other additives 15-2 Harvey W. Wiley o With few laws to police dishonorable operators, dangerous, fraudulent, and cheapened products made their way to market. o At age 39, Wiley took charge of the Bureau of Chemistry in Washington, D.C. 15-3 Harvey W. Wiley o Wiley began to agitate for a national pure food law o Wiley set up an experiment whose participants were nicknamed the “poison squad” o In 1906, Congress finally passed the Pure Food and Drug Act o The Bureau of Chemistry evolved into the Food and Drug Administration, a powerful agency that protects public health 15-4 Consumerism o Consumerism: o A movement to promote the rights and powers of consumers in relation to sellers o A powerful ideology in which the pursuit of material goods beyond subsistence shapes social conduct o Consumer: A person who uses products and services in a commercial economy 15-5 Consumerism as an Ideology o Consumerism describes a society in which people define their identities by acquiring and displaying material goods beyond what they need for subsistence o The full emergence of consumerism came as economic changes interacted with cultural and social developments o Declining influence of religion o The industrial revolution 15-6 Consumerism Rises in America o In the 1800s, a commercial economy began to appear o Consumerism in America began with a confluence of events at the turn of the 20th century o Railroads o Great merger wave of 1896-1904 o Mass production of consumer goods o Electricity and other new technologies o Movement of people 15-7 Consumerism in Perspective o Marketing research reveals a widespread, profound effort to find love, status, and individuality in products o Materialism is an emphasis on material objects or money that displaces spiritual, aesthetic, or philosophical values o Thorstein Veblen, in his book The Theory of the Leisure Class, challenged the conventional economic wisdom that consumers bought goods for their functional utility 15-8 Consumerism in Perspective o Complaints about consumerism include: o It leads to commodification of all parts of life o It encourages unwise, irrational, and unproductive uses of money o Heavy consumption is profligate with natural resources and incompatible with sustainability 15-9 Consumerism in Perspective o Consuming beyond necessity violates “the idea the God’s world is already full and complete” o It distorts our values o It is a pathology of corporate capitalism 15-10 The Global Rise of Consumerism o The ideology of consumerism has risen in Russia, Asia, Latin America, the Middle East, and even Africa o It may be less a Western than a universal phenomenon, coming with human nature, economic progress, and cultural change interact at a certain moment in a modernizing society o Once it takes hold, consumerism seems irrepressible, but resistance continues 15-11 In Defense of Consumerism o Successful products either create value for customers or they fail in competitive markets o Intense competition between corporations works to bring consumers more choices, higher quality, and lower prices 15-12 Consumerism as a Protective Movement o The idea of collective interest in protecting consumers dates back to the earliest transactions between merchants and customers o 1870s when Populist farmers attacked railroads o Food and Drug Act of 1906 15-13 Consumerism as a Protective Movement o The 1960s and 1970s prompted another wave of legislation to protect consumers and expand their rights o Consumer protection is today a major function of government 15-14 Figure 15.2 - Spending on Consumer Health and Safety by Federal Regulatory Agencies: 1960–2010 15-15 The Consumer’s Protective Shield o Besides federal laws and regulations, there are significant protections at the state and local level o Every state and local government has extensive consumer protection laws 15-16 The Consumer’s Protective Shield o More than 50 federal agencies and bureaus are active in consumer affairs o These agencies and bureaus are effective despite changing ideologies in administrations, powerful critics, budget restraints, and too little staff to meet all their statutory mandates 15-17 The Food and Drug Administration (FDA) o Evolved out of the authority established by Congress in the Food and Drug Act of 1906 o Nineteen specific areas of responsibility o It has authority to: o Regulate the quality, safety, and labeling of human food, pet foods, animal feeds, and food additives o Approve human and veterinary drugs and medical devices 15-18 The Food and Drug Administration (FDA) o Set safety and effectiveness standards for over-thecounter drugs o Regulate the safety and labeling of cosmetics o Regulate the marketing, labeling, and ingredients of tobacco products o Set safety standards for radiation-emitting products including microwave ovens, televisions, X-ray machines, lasers, and sunlamps 15-19 The Consumer Product Safety Commission (CPSC) o Created by Congress in 1972 o Has power to: o Set mandatory or encourage voluntary safety standards for more than 15,000 consumer products o Ban the sale of products that expose consumers to unreasonable risks o Require manufacturers to recall dangerous products o Investigate the extent and causes of deaths and injuries from consumer products 15-20 The National Highway Traffic Safety Administration (NHTSA) o Created by Congress in 1966 to: o Mandate minimum safety standards for automobiles, trucks, and their components o Set fuel economy standards for cars and light-duty trucks o Require manufacturers to recall cars and trucks with safety defects o Administer grants for states and cities to promote highway safety o No other agency has such extensive controls over a single product 15-21 Figure 15.3 - One Effect of Deregulation on Three Consumer Agencies 15-22 Other Consumer Protection Agencies o The Federal Trade Commission o The Environmental Protection Agency o The Equal Employment Opportunity Commission 15-23 Product Liability Law o Product liability: A doctrine in the law of torts that covers redress for injuries caused by defective products o Tort: A private wrong committed by one person against another person or her or his property 15-24 Negligence o A tort involves either an intentional or a negligent action that causes injury o Obstacles to consumers in early product liability law: o Caveat emptor o Narrow interpretation of the doctrine of privity, which held that consumers could sue only the party that sold them the product 15-25 Warranty o A warranty is a contract in which the seller guarantees the nature of the product o An express warranty is an explicit claim made by the manufacturer to the buyer o An implied warranty is an unwritten, commonsense warranty arising out of the buyer’s reasonable expectations 15-26 Strict Liability o The doctrine of strict liability established that anyone who engages in a dangerous activity is liable for damages to others, even if the activity is conducted with utmost care o The key to strict liability is that the injured person need not prove negligence to prevail in court 15-27 Strict Liability o Under strict liability an injured plaintiff must prove only that: o The manufacturer made a product in a defective condition that made it unreasonably dangerous to the user o The seller was in the business of selling such products o It was unchanged from its manufactured condition when purchased 15-28 Perspectives on Product Liability o The U.S. legal system makes it easier for plaintiffs to win large damage awards from product makers than do the systems of other countries. o Nowhere else in the world has the legal system created such a favorable environment for product lawsuits as in the United States. 15-29 Cost and Benefits of the Tort System o A recent estimate is that the tort system inflicts an annual economic cost of $835 billion on society, about 2.2 percent of GDP o Dangerous products have been either taken off the market, had their sales restricted, or been redesigned o Lawsuit threats and high liability insurance costs regularly cause companies to drop high-risk products 15-30 Concluding Observations o Consumerism is a word with two meanings: it refers both to a kind of society and to a protective movement o Consumerism as a way of life is spreading around the world because the conditions that support it are becoming more common 15-31 Concluding Observations o Consumers in the United States are now more protected from injury, fraud, and other abuses than in the past because of stronger government regulation and more consumer-friendly common law doctrines 15-32