Session 2: Consumers in Globalized Society

Transcription

1 Session 2: Consumers in Globalized Society "Smart regulation in a globalized society: the new policy paradigm" Prof. Iain Ramsay Professor of Law, University of Kent, UK From he was Professor of Law at Osgoode Hall Law School, York University, Toronto, Canada. His primary areas of research are regulation of consumer markets and consumption relations at the national and international level and consumer bankruptcy. He is an internationally recognized scholar in these areas and from was President of the International Association of Consumer Law. He has written many articles on consumer law and bankruptcy. His most recent text is Consumer Law and Policy: Text and Materials on Regulating Consumer Markets (2d.ed) ( 2007 Oxford: Hart). There are three trends in consumer regulation: the increasing internationalization of consumer law, influential changes in approaches to consumer market regulation, and the behavioral revolution in thinking about consumer behavior and its implications on consumer policy. Given the limits of my time I will briefly introduce the first trend and focus primarily on changes in approaches to consumer regulation and understanding of consumer behavior. There is no international set of norms that are enforced by an international body, but increasingly, a diffusion of international consumer norms has been witnessed, for example, through product standards bodies such as the ISO as well as through soft law, for example, the UN guidelines and the development of best practices, and benchmarking, for example, in the OECD consumer policy committee. The EU has developed a consumer scoreboard for evaluating consumer policies throughout the EU. Moreover, there are also international networks of regulators and enforcers such as the International Consumer Protection Enforcement Network (ICPEN). The OECD Consumer Policy Committee is a good example of a platform where regulators and policymakers from different countries can meet and develop a uniform international approach without the existence of a central international lawmaker. These developments often have significant influence within the OECD and outside. International networks of agencies are sites for information sharing and coordination. At the national level it is important that the new Japanese consumer agency serve as a central source of information on consumer issues and problems in order to effectively assess issues and respond accordingly. 23

2 The central theme of my discussion is trends in consumer regulation toward framing a better regulation agenda. Some key themes in contemporary regulation are that regulators harness private actors on both the supply and demand side of the market in order to achieve public objectives. Financial literacy policies attempt to ensure that consumers make effective use of the credit market while responsible lending harnesses corporations to ensure fair lending markets. Policy making is evidence based; attempts to incorporate a wider range of instruments than simply the passage of a law that is enforced by the state, and should measure outcomes not outputs. It is not useful to know how many prosecutions have been instituted but whether overall market performance has improved. An example is the regulation of the alternative credit market. In many countries, there is much pressure to regulate alternative credit markets where people borrow money at high rates. We might introduce a variety of policies. More extensive credit reporting might facilitate the move from the high-cost market to the mainstream market by consumers with good payment records. Interest rate ceilings on excessive charges might address fraud. We can also think about facilitating competition in the alternative market by better information policies, and create incentives for mainstream lenders to enter this market through policies modeled on the US Community Reinvestment Act. We can target enforcement against certain unfair practices by facilitating the monitoring of information on this market to identify and monitor the problems. Any consumer problem will involve a significant number of potential policies which may not have a single solution. What is important is whether the overall mix of policies results in good outcomes for consumers. The Office of Fair Trading in the UK, for example, is now trying to quantitatively measure the benefits that its actions bring to consumers. Another trend in regulation is toward risk-based enforcement, which essentially implies that enforcement activities are focused on those areas that are creating the greatest risk for consumers. Any consumer agency should have a mix of enforcement techniques, for example, the ability to compel corporations to enter into an undertaking to set up a compliance system, to use criminal sanctions in certain cases, and to obtain redress for consumers. It is also important that consumer groups play a role in setting the policy agenda. In this respect, an interesting development in the UK is the Super Complaint Process, which allows recognized consumer groups to make a complaint to the Office of Fair Trading that certain features of a market appear to be significantly harming the interests of consumers. The Office must respond within three months.it may refer the issue to the Competition Commission, which then investigates and may make an order in relation to a particular market. My third theme is the behavioural revolution. Much of traditional consumer policy was based on a rational actor model of the consumer. In the past few 24

3 years, this model has been challenged by a new model of consumer policymaking, which is now influential within the EU, the UK, and the US. This is based on the findings of behavioural economics which recognize that consumers may be subject to many systemic biases in their decision making. They may be overconfident: take a short-term perspective; make different choices depending on how the same choice is framed and over- or underestimate certain risks. There are many implications of this model for decision making. The first is that behavioral economics requires us to rethink disclosure policies, which have often been a central part of consumer policymaking. In many cases, disclosure policies have been framed on the assumption of rational behavior by consumers. Behavioral economics requires us to think about the effectiveness of existing disclosure policies. For example, if consumers are overconfident and underestimate risks, then they are unlikely to pay attention to warnings about over-indebtedness at the time they enter into a contract. The second point is that governments will wish to consider ways of exploiting behavioral economics in order to ensure that consumers do the right thing. The challenge for governments is to use the findings of behavioral economics, to achieve public policy objectives, for example, through changing default rules and exploiting the distinctions in consumer responses to opt-in and opt-out choices. Similarly, we might reconsider to what extent cooling off periods can be used as an opportunity for consumers to become debiased about the selling practices. The third point is the effect of the behavioral revolution on legal standards. The law sometimes divides consumers into the average rational consumer the norm and the so-called vulnerable consumer, providing special protection for vulnerable groups. Behavioral economics suggests that this simple dichotomy may be difficult to sustain. Consumers may be vulnerable in many different situations, and hence, it is difficult to make a priori judgments about consumer rationality. Evidence-based analysis will be necessary in any individual case to specifically examine a particular market and determine whether there are problems in that market, which might be related to competition, information, or behavioral bias. What is challenging about behavioral economics is that in some cases, it suggests that people repeatedly make the same mistakes, and market learning does not correct these mistakes. 25

4 Questions and Answers [Question] What measures should be taken to avoid repeating the same mistakes? Prof. Iain Ramsay One option may be that you could attempt to have an innovative form of information policy, which might prevent people from making a mistake, or you might change a default rule. Another alternative would be to understand why people make a mistake, for example, perhaps they adopt a short-term perspective about their credit and tend to run up credit card debts, which they fail to repay. One possibility is to get people to commit in advance to payment in full of their credit card bill every month. [Question] How can disorderly international trading be regulated or what kind of regulations are there to control this? Prof. Iain Ramsay From a consumer s viewpoint, there are some interesting aspects of internationalization in relation to the regulation of international financial services. For example, an influential private group, essentially comprising of central bankers, establish capital adequacy ratios through agreements, for example, the Basel II Agreement. There are also other groups such as the World Bank, which increasingly are developing an interest in the promotion of consumer credit. Consumers should be effectively represented in these developments. 26

5 "Consumers in modern society" Dr. Victoria W. Thoresen Project Manager, Consumer Citizenship Network Victoria Wyszynski Thoresen is Associate Professor of Education at the Hedmark University College in Norway and project manager of The Consumer Citizenship Network. Thoresen has specialized in curriculum development, global education, peace education, value-based education, and consumer education. In addition to many years of experience as a teacher and teacher trainer, Thoresen has written textbooks for schools and teacher training and has functioned as an international educational consultant. She has assisted UNEP and the U.N. Marrakech Process Task Forces in the development of policy recommendations and a core curriculum for education for sustainable consumption. The dynamics and dialectics of global development are noteworthy. There are new products, problems, and possibilities. There are two significant developments and one special consequence that we have to explore when we discuss these issues. One of them is the set of global ethics based on the concepts of sustainable development and social responsibility, and the other is the remarkable increase in stakeholder involvement worldwide. Stakeholder involvement is a form of civic action. We have to see how this consumer citizenship can be supported by policies, which will make them constructive and positive in order to enable harmonious growth nationally and regionally. Global ethics are the results of dialogue and discourse over many years; they have their roots in the religions, cultures, and opinions of people everywhere. Environmental degradation has reached proportions that require immediate action. Moreover, poverty remains rampant in the world. The increase in consumption in some parts of the world has increased the expense of people in other parts because of irregular distribution. In addition, the media are spreading materialistic lifestyle images, which are influencing the consumption behavior in many parts of the world. The United Nations Development Programme, Human Development Report from 1998 mentions the extreme spread of physical and mental health problems in the world due to lifestyle choices as one of the issues to be taken into consideration when framing consumer policies. Sustainability does not imply keeping what we have, but rather developing a world where basic values of justice, compassion, integrity, honesty, freedom, and peace are safeguarded. We are trying to build a society that emphasizes the need not just for satisfying basic needs but for safeguarding human dignity. International organizations such as the ISO are trying to define social responsibility. It is interesting to note that ethics form the framework for 27

6 actions. Global ethics today are required to undergo change and be constantly modified. In the white paper from the Cabinet Office last year on life quality, one of the statistics was on the willingness to participate in decision making by the average Japanese. It emphasized that people really would like to participate and be involved in decision making more than before. On the other hand, consumers demand and expect transparency and accountability even from governments and businesses. Consumer citizenship is by definition constructive. It involves identifying proactive solutions. By definition, a consumer citizen is an individual who makes choices on the basis of ethical, social, economic, and ecological considerations and who actively contributes to the maintenance of a just and sustainable society by caring and acting responsibly on all levels. Korea, Japan, China, India, and many other Asian countries have focused on education. At the same time, there is a general lack of cohesiveness with regard to consumer education. On the conceptual level, we often talk about issues that are small and fragmented rather than starting with a larger vision and understanding how consumption plays a role in society today. On the didactical level, it is very difficult to get theory and practice to function together and to connect what the children are learning in school to their everyday lives. The UN Decade on Education for Sustainable Development has also moved into the arena of education for sustainable consumption. People need to realize they are also responsible for the management of natural, human, and technological resources. In a world run by economics, there is a need for a basic understanding of the economic principles of society for everyone. In teaching consumer issues, it is important to look at the positive aspects and not focus on the negative ones. We need to connect the obtained data with the issues at hand. For example, the OSAD and United Nations reports indicate that deteriorating air and water quality, food supply, and waste production are major issues in Asia. However, if these statistics are only provided to students, they will not see the correlation between the consumption patterns and their lives. If consumers are trained to explore the different aspects of products and services, then they will find it easy to examine these aspects. Labels on products will help us understand these aspects easily, and other forms of consumer information will provide us with the required answers. 28

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