Consumerism

2. Chapter 16 Consumerism This chapter: • Defines and discusses the idea of consumerism. • Describes the protective shield of statutes, regulations, and consumer law that has risen to protect consumers since Harvey Wiley’s era. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

3. Harvey W. Wiley Opening Case • In the late 1800s, Harvey W. Wiley, a professor at Purdue University, began working with Indiana state officials to detect adulteration in food products. • A large, highly competitive food industry applied new food chemistries using preservatives, colorings, flavorings, texturizers, and other additives. • With few laws to police dishonorable operators, dangerous, fraudulent, and cheapened products made their way to market. • At age 39, Wiley took charge of the Bureau of Chemistry in Washington, D.C. 16-3 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

4. Harvey W. Wiley Opening Case (continued) • Wiley began to agitate for a national pure food law. • Wiley set up an experiment whose participants were nicknamed the “poison squad.” • In 1906, Congress finally passed the Pure Food and Drug Act. America’s memory of Dr. Wiley has dimmed, but his work still touches our lives. The law he fought for is the foundation of modern food and drug regulation. 16-4 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

5. Consumerism • Consumerism is a word with two meanings: • A movement to promote the rights and powers of consumers in relation to sellers. • A powerful ideology in which the pursuit of material goods beyond subsistence shapes social conduct. Consumer A person who uses products and services in a commercial economy. 16-5 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

6. Consumerism as an Ideology • Consumerism describes a society in which people define their identities by acquiring and displaying material goods beyond what they need for subsistence. • The full emergence of consumerism came as economic changes interacted with cultural and social developments. • Declining influence of religion • The industrial revolution 16-6 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

7. The Rise of Consumerism in America • In the 1800s, a commercial economy began to appear. • Consumerism in America began with a confluence of events at the turn of the 20th century. • Railroads • Great merger wave of 1896-1904 • Mass production of consumer goods • Electricity and other new technologies • Movement of people • People began to express role and status through products they consumed. 16-7 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

8. The Rise of Consumerism in America (continued) • Voices have long been raised against a focus on consumption. • Thorstein Veblen – The Theory of the Leisure Class • Ralph Nader • Attempts to create sanctuaries from consumerism in American society have been losing efforts. • Blue laws • Radio commercials • Fence off childhood from it • Consumerism, once it takes hold, seems irrepressible, but resistance continues. 16-8 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

9. Consumerism as a Protective Movement • The idea of collective interest in protecting consumers dates back to the earliest transactions between merchants and customers. • 1870s when Populist farmers attacked railroads • Food and Drug Act of 1906 • The 1960s and 1970s prompted another wave of legislation to protect consumers and expand their rights. • Consumer protection is today a major function of government. 16-9 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

10. The Consumer’s Protective Shield • Besides federal laws and regulations, there are significant protections at the state and local level. • Every state and local government has extensive consumer protection laws. • An important protection also exists in the dissemination of information to the mass media and the growth of investigative reporting. • More than 50 federal agencies and bureaus are active in consumer affairs. 16-10 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

11. The Consumer Product Safety Commission • Created by Congress in 1972. • Directed by six major statutes. • Much effort cooperates with business. • Regulates every consumer product except: • Guns • Boats, planes, cars, and trucks • Foods and drugs • Cosmetics • Tobacco • Pesticides 16-11 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

12. The National Highway Traffic Safety Administration • Created by Congress in 1966 to: • Mandate minimum safety standards for automobiles, trucks, and their accessories. • Establish fuel economy standards. • Administer state and community highway safety grant programs. • Conduct research on, and development and demonstration of, new vehicle safety techniques. 16-12 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

13. The Food and Drug Administration • Evolved out of the authority established by Congress in the Food and Drug Act of 1906. • Nineteen specific areas of responsibility. Examples: • Regulate the composition, quality, safety, and labeling of food, food additives, and cosmetics. • Require premarket testing of new drugs and evaluate new drug applications and requests to approve drugs for experimental use. • Develop standards for the safety and effectiveness of over-the-counter drugs. • Inspect and license manufacturers of biological products. 16-13 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

14. Federal Agencies Responsible for Ensuring Safe Pizza 16-14 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

15. Other Consumer Protection Agencies • The Federal Trade Commission • The Environmental Protection Agency • Occupational Safety and Health Administration • The Food and Safety Inspection Service • The Securities and Exchange Commission • The Department of Health and Human Services • The Equal Employment Opportunity Commission • The Federal Deposit Insurance Administration • The Pension Benefit Guaranty Corporation • Transportation Security Administration 16-15 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

16. Product Liability Law • Beyond regulation, a major restraint on business is the ability of consumers to file product liability lawsuits when they are harmed. • The tort system is designed to provide compensation to victims and to deter future misconduct. • Product liability is the branch of tort law that covers redress for injuries caused by defective products. 16-16 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

17. Negligence • A tort involves either an intentional or a negligent action that causes injury. • Obstacles to consumers in early product liability law: • Caveat emptor • Narrow interpretation of the doctrine of privity, which held that consumers could sue only the party that sold them the product • This legal protective wall for manufacturers was broken down by the milestone case of MacPherson v. Buick Motor Co. in 1916. 16-17 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

18. Warranty • A warranty is a contract in which the seller guarantees the nature of the product. • An express warranty is an explicit claim made by the manufacturer to the buyer. • An implied warranty is an unwritten, commonsense warranty arising out of the buyer’s reasonable expectations. 16-18 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

19. Strict Liability • 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. • The key to strict liability is that the injured person need not prove negligence to prevail in court. • Under strict liability an injured plaintiff must prove only that: • The manufacturer made a product in a defective condition that made it unreasonably dangerous to the user • The seller was in the business of selling such products • It was unchanged from its manufactured condition when purchased 16-19 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

20. An Assessment of Product Liability Suits • Product liability law has attracted controversy: • Supporters argue that it fulfills its purpose to compensate victims and to deter future corporate wrongdoing. • Corporations see a legal doctrine in need of reform. • Industry complains that many product liability lawsuits are frivolous and jury awards are capricious. 16-20 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

21. Business Wants Product Liability Reform • Establish uniform federal product liability standards in all 50 states. • Move product liability cases to federal courts. • Eliminate strict liability for products that cause injuries in the future that could not reasonably have been foreseen when the products were made. • Limit punitive damages in product liability cases. • Immunize industries through legislation. 16-21 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

22. Impacts on Operations • Many firms have learned that the following actions are important for preventing lawsuits: • Attention to design • Improving quality • Instructions and warning labels • Product recalls • Such actions reduce, but cannot eliminate, product liability exposure. 16-22 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.

23. Concluding Observations • Consumerism is a word with two meanings: it refers both to a kind of society and to a protective movement. • Consumerism as a way of life is spreading around the world because the conditions that support it are becoming more common. • 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. 16-23 McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.