Monday, April 4, 2011

R.I.P. Caveat Emptor?

So there’s a new law, more regulation, more to get hot under the collar about and another reflection of the declining trust between business and the public.

Will the Consumer protection Act really protect us from the shenanigans of the shysters? Not on your Nelly! Already there are nearly twenty laws that govern transactions between buyers and sellers. This new law may just criminalise a few more and add some yet to be determined costs to the less sophisticated mom and pop stores, but the real villains will simply find new ways of dodging the bullet. Perhaps it should have been named “The Fair Deal Act” rather than implying real protection.

Rob Davies and his DTI team may deserve some kudos for good intentions. It is always nice to say “this brings us in line with the best in the world”. But what’s the point of introducing a law that you cannot enforce from the outset unless there is some hidden irony in introducing it on April the 1st. There’s no full infra-structure in place to give effect to the act. A number of provisions are open to interpretation and will have to be tested in court. There’s been a rather muted public awareness programme, and to add insult to injury, the vast number of institutions where it is most needed, the smaller municipalities, are exempt from the act “for the time being”. It’s not clear how they will be penalised, but the mind boggles at the implications of lodging a complaint against a municipality and having them pay R1m or 10% of ratepayers’ revenue for not providing a service to the same ratepayers. But then, I must confess I had some difficulty in reading 100 pages of “legalese” and this may be a very superficial interpretation of the act.

But the intention of this article is not to take issue with the act itself, rather to assess it against a much broader background.

For one thing, we have many admirable laws (as well as questionable ones). We have a great Constitution. But we are a country rife with lawlessness. I would rather not have the need to employ a Security company to install a multi thousand Rand system in my home, than have a law that allows me to take it to task for putting in a faulty thingamajig. The plethora of laws and regulations is only meaningful if it really deters lawbreakers. What’s the point of having a law against murder and robbery if, in this country, there is only a 20% chance of the perpetrator being caught, let alone being convicted and sentenced? Those are pretty good odds to encourage any wannabe gangster. There is a climate of crime and who knows, if we get to grips with serious crimes we may automatically reduce petty crime and even have fewer faulty kettles in circulation.

Caveat emptor” or “let the buyer beware” was something of a battle cry for the champions of laissez-faire capitalism. The Friedman logic was that given freedom of choice at all levels, the good will chase out the bad and competition will ensure that poor service will succumb to good service. It is the stuff of high school economics: good economies ensure maximum choice with maximum suppliers, free moving prices and knowledge and awareness on the part of consumers.


Tell that to the victims of Bernie Madoff’s $50bn fraud. They were all highly educated and informed. Indeed many of them were financial advisors and it took a lecturer in mathematics to crunch the numbers and expose him. It will be abhorrently callous to fling “caveat emptor” or “better luck next time!” in the face of those victims materially annihilated.

How do you apply “caveat emptor” to the millions of people who can barely read or write? Or to the millions who have lost their jobs, the countries that have been plunged into deep recession, and indeed a global crisis, all because of the reckless behaviour of a bunch of elite “banksters” searching for maximum personal gain in the shortest time possible?

You don’t. You make new laws. You introduce new regulations and you simply assume that no-one can be trusted. You assume as a matter of fact that all human beings are selfish. Everyone is out to make a quick buck. In fact you create a system of transaction which entrenches it. You create a system whose prosperity depends on it. In the process you create that reality. If selfishness is not only condoned but revered you must expect growing social stresses that have to be managed and controlled. There is a direct correlation between the absence of sound human values and the number of laws needed to regulate behaviour.

Society can then respond in one way only – to intervene more forcefully and regularly through its representative governments, either directly or indirectly, either through a nudge or a shove. And so we see a burgeoning government sector and a shrinking and highly regulated private sector. Much to the chagrin of the minimum government advocates, the days of small governments and minimum involvement in domestic economies may be gone forever.

Until of course, we confront a crucial question: who do we trust more – governments or business? The supreme irony is that in most countries, people trust their governments less than they do business.

The simple litmus test of trust is whether we believe the other has our interest at heart. In turn we apply that test by checking whether the other’s behaviour is serving or self serving…an extremely difficult test to pass if you are seen driving past a squatter camp in the latest yupmobile. Sincerity is the glue that holds it all together and ensures the strength of that trust. Both business and government have no excuse to act otherwise. Governments are elected to serve, and contrary to questionable and outdated profit motive theories, companies also exist to serve. This leaves a number of us, perhaps the majority with something of conundrum: we dislike big government but abhor cheaters even more.

There will no doubt be some cynics who see the Consumer Protection Act as another avenue for graft, corruption, and self enrichment. Only time will tell. While it certainly enhances access to redress, I simply question its overall efficacy and its cost/benefit logic. It will do little to discourage the adept villain and could create a false sense of security where vigilance is still needed.

There has been sufficient “nudging” world wide from a variety of sources to put business on a different path from the “greed is good” and profit maximisation era. A substantial majority of informed people even in developed Western economies believe that shareholder value is not sacrosanct and can be compromised where necessary in the interests of society. Most private sector transactions even in this country are based on solid and trusting relationships with an underlying sincere intention to serve.

To set this in reinforced concrete we do not need a new law, but an understanding and appreciation of the simple axiom that ultimately our true value lies in our capacity to make a contribution to others.

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