October 13, 2007

October 13, 2007 | Commentary on Regulation

Do Regulators Need Expanded Authority Over Consumer Goods?

As the parent of a five-year old boy, it was impossible to miss the news. Within hours of the announcement that certain models of Thomas toy trains were being recalled, our family began to get calls and e-mails from other concerned parents. "Did you hear?" "What are you going to do?" "Should we throw them all away?"

The Thomas recall - triggered when the manufacturer, RC2, found during a routine test that the paint used by its Chinese sub-contractor had excessive lead content, was one of many such recalls this year of products (primarily from China) ranging from toys to toothpaste.

The extent of the problem is unclear. While millions of products have been recalled, there have been no reported consumer injuries. Overall, injury rates from consumer products have been heading down, not up. And cases of lead poisoning in children are at all-time lows. Still, the recalls may be a sign of real problems in manufacturing, especially (though not exclusively) in China.

But is increasing the power of regulators the answer? Easy answers, such as increasing the number of federal inspectors, may sound good but have little real effect, given the billions of products sold each year. Others, such as empowering state attorney generals to sue, could create a tort nightmare for U.S. companies, raising prices for American goods, while not affecting foreign manufacturers outside of legal reach. Still others, such as a proposal to require manufacturer's to prove financial responsibility, might simply discourage small businesses, while benefiting only large corporations.

The best answer to the problems, in fact, may not lie with Congress at all, but with consumers, including the network of Thomas parents who sprang into action in my neighborhood. We didn't throw our Thomas trains away, but many parents across the country did, and many others will be buying far fewer of the little engines and railcars in the future. This has an effect on the bottom line -- RC2's market value is down about a third this year. And, while consumers may not deal directly with factories in China and elsewhere, the firms consumers buy from do. With their brand names at risk, companies such as Mattel have already acted to strengthen their oversight of off-shore manufacturers.

There is of course a role for regulation. But it is consumers themselves, acting in the marketplace, that provide the strongest and most effective protection against poor quality and unsafe goods. As Thomas' fictional boss would put it, the marketplace is a really useful little engine.

James L. Gattuso is senior research fellow in regulatory policy at the Heritage Foundation.

About the Author

James L. Gattuso Senior Research Fellow in Regulatory Policy
Thomas A. Roe Institute for Economic Policy Studies

First appeared in the CQ Researcher