AN ANALYSIS OF THE MARKET ECONOMY
APPROACH TO CONSUMER PROTECTION
By
Shankyula Tersoo Samuel
Introduction
The concept of free market economy is an expression of how to
address a society’s problem of what goods and services to
produce, how to produce them and for whom. The concept of
free market economy is therefore a call for individual producers
and consumers freedom in responding to the forces of demand
and supply as it pleases them. This presupposes noninvolvement of government in the course of the decision making
process.
From the consumer protection perspective, this work is
particularly concerned with looking at the virtues and vices of
this economic philosophy. Of the three questions, that is What,
How and for Whom to produce, it is no doubt a fact that
production is a continuous circle. Meaning that production is
meant for consumption and after consumption, there arises the
need for more production. It therefore need be emphasized that
the ultimate purpose of production is consumption. That is to
say without consumption, production process becomes
incomplete and needless. This shows the importance of the
consumer. Logically too, this underscores the need for an
economic theory which from the beginning should be consumer
oriented.
This work, therefore, for a better understanding, examines
the concept of consumerism, followed by an examination of the
functions of consumer protection. This is with a view to
providing an insight into the philosophical underpinnings as

Research Fellow, Nigerian Institute of Advanced Legal Studies, email:
[email protected].
NIALS Journal of Business Law
61
well as the policies that should generally underlie the question
of consumer protection globally. The work then proceeds to
examine the theoretical framework of the concept of a market
economy as well as other related concepts like regulation and
deregulation. In doing so, the writer tries to critically review the
arguments representing different schools of thought on the
question of consumer protection. That is as to whether the task
of consumer protection would be better achieved through
deliberate government intervention or it should be left to the
interplay of market forces.
It is the fundamental thesis of this work that the
assumptions of a market economy to consumer protection
though may appear persuasive and attractive, do not in a strict
sense and for all practical purposes, translate into reality. This is
due to potential incidences of market failures and abuses. To
this end, a conscious and a deliberate government
interventionist policy is indispensable. Indeed, such would be
necessary so as to achieve a number of goals including ensuring
always that there is a level playing field in the market place and
that the players are playing according to the rules. Second, that
in very critical sectors1 and even critical economic periods2
government would intervene to salvage the economy and
protect the interest of the consumers. What then is
consumerism?
Concept of “Consumerism”
1.
2.
Such as in the area of public utilities and basic infrastructural amenities.
As in the case of the recent global economic meltdown which witnessed
government interventions across the globe by way of bailing out banks and
automobile industries that suffered financial distress. Nigeria has not been an
exception. This is evident in the recent interventions by the Central Bank of
Nigeria in bailing out some banks that were almost going under following the
global economic meltdown. Up to Four Hundred and twenty billion naira was
committed for this purpose. See the article titled “The Effect of Sanusi’s
Bailout Funds” on www.economicconfidential.com/x/index.php/monatary/ 310
and www.mga-inc.com visited on 28.07.2011.
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An Analysis of the Market Economy Approach to Consumer Protection
This term is used to summarize the totality of the recognition,
promotion and protection of consumer interest in the market
place. It is therefore a description of the:
Phenomenon whereby purchasers of goods and
services are trying to attain a marketing system
which makes the consumer sovereign which
guarantees to him the right to safety, the right to
be informed, the right to choose and the right to
be heard (and it is based) on that basic tenet of
the free enterprise system which says that the
consumer (rather than government) should
control through rational purchasing decisions in
the market place which goods and services are
produced.3
Put it another way, consumerism is the action of individuals
and organizations responding to consumer dissatisfaction in
exchange relationships. It is both a protest against the perceived
injuries and efforts to remedy those injustices. Given the
imbalance of power relations between the consumer and the
producer, consumerism therefore serves as an expression of this
opinion, an attempt to achieve a more equal balance of power
between the buyer and the seller4.
One significant question which indeed remains as the central
theme throughout this work is how does the free market
economy influence the notion of consumer protection or
consumerism? In other words, if the notion of consumerism is
all about power tussle between the consumers and the
3. Magnusson, S.G. quoted in Haemmuel Goerge and Blies, Text, cases and
materials on consumer law (1978) (New York, Oxford University press) pp. 5859.
4. Stanton, W. J. Fundamentals of Marketing (1981) 6th ed. (Tosho Printing Co.
Ltd; Tokyo, Japan) p. 530.
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63
producers, to what extent can it be said that the free market
economy better proffers solution to that problem? These posers
constitute the thrust of this study and runs throughout the work.
However, it must be emphasized briefly that the concept of
free market economy presents the buyer (consumer) as the
driver of the market. This is because he is presumed to act
rationally based on his self-interest. That is to say by the
“rational” purchasing decision of the consumer, he determines
what to produce, how much to produce etc. The focus is
therefore so much on the consumer thus giving rise to the theory
of consumer sovereignty.
Curiously, the consumer in several respects seems to be
trailing behind the intelligence of the producer in the market
place. The result is that instead of the consumer, the producer
tends to be the driver of the market. This is facilitated due to the
eminent situations of market failures. The principles of free
market economy are but theoretical assumptions. In reality
however, the situation is largely different.
But the importance of the consumer in the production
process cannot be over emphasized. There is therefore the need
first and foremost for a government to recognize the
importance, interest and then the problems of the consumer.
Consequently, any economic policy of such a government must
be adequately geared towards taking care of consumer interests.
Our conclusion in this work is that with the free market
economy, the power tussle between the consumer and the
producer may be titled disfavourably towards the consumer.
This can only be averted through government intervention and
regulatory policy by constantly watching the performance of the
market, and creating an atmosphere for competition to thrive.
Functions of Consumer Protection
In his work titled An Inquiry into the Nature and causes of
the Wealth of Nations, Adam Smith said:
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An Analysis of the Market Economy Approach to Consumer Protection
Consumption is the sole end and purpose of
production; and the interest of the producer ought
to be attended to, only so far as it may be
necessary for promoting that of the consumer. But
in the mercantile system, the interest of the
consumer is almost constantly sacrificed to that of
the producer; and it seems to consider production,
and not consumption as the ultimate end and
object of all industry and commerce.5
Implicit in the above quoted statement is the concept of
consumer sovereignty. Tied to the concept of consumerism
already discussed above, it suggests the centrality of the
consumer in the production process and why this may merit a
distinctive and perhaps a unique regulatory policy.6
The functions of consumer protection in other words
represent the policies that should shape the protection of the
consumer. About five functions are discernible.7 These include:
first, that consumer policy must ensure that the market place is
competitive. Secondly, consumer policy must enhance the
competitive forces of the market place by rules against unfair
trade practices and positive disclosure requirements. Thirdly,
consumer policy should protect the weak from marketdetermined outcomes, which are considered to be unfair.
Fourthly, consumer policy should serve as a distribution tool for
the creation of a more equitable society. Fifthly, consumer
policy can converge with environmental policy in the protection
5. Smith, A. (Campbell, R. H. Skinner, A. S. and Todd, W.B. (ed): An Inquiry
into the Nature and Cause of the Wealth of Nations. (Liberty classics:
Indianapolls) 1981 at p. 660.
6. We shall later return to this concept of Consumer Sovereignity in relation to
free market economy below.
7. Howells, G.: “Consumer Representation” (1993) Consumer Law Journal 17 at
P. 18 in Kanyip, B.B. – Consumers, Producer Hegemony and the Nigerian
Economy (International Law Centre, Lecture/Conference Series No. 1: Kaduna)
1999. P., 4 at 7.
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65
of the environment. Lastly, consumer policy must coincide with
public health objectives of society.
The point of emphasis here is that because of the
importance of the consumer in the production process, the
consumer protection policy of any government fundamentally
must reflect these functions. Of particular relevance in this
study are the first two functions. To what extent can it be said
that the legal regime of consumer protection in Nigeria ensures
that the market place is competitive? How well and how far has
consumer policy enhanced the competitive forces of the market
place by rules against unfair trade practices and positive
disclosure requirements? These posers remain central to this
study and are addressed below. Our thesis is that not only is the
market place competitive as it should be, but that the rules
against unfair trade practices and positive disclosure
requirements are equally inadequate from enhancing the
competitive forces of the market place.
Taken together, the idea represented in these two functions
is an emphasis on the need to make the market place
competitive, devoid of trade malpractices. As a condition
precedent for the protection of the consumer under a free market
economy therefore, there must be competition in the market
place. In this wise proper regulatory framework ought to be put
in place for the purposes of ensuring competition as well as
checking anti-trust activities. The existence of monopolies in
certain sectors in the economy today is a fact antithetical to
competition. In the main, monopolies amount to a market
failure. That is a situation where the market is not opened to
many operators. The buyer constituency is therefore left with
few options. At this point, prices and quality of the products and
services in question are easily manipulated to the disadvantage
of the consumer. If this is not taken care of, what it will mean
will be to defeat the very essence for which a free market
economy is expected to achieve.
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An Analysis of the Market Economy Approach to Consumer Protection
As earlier noted, the assumption of a free market economy
is that the consumer is the driver of the market being that he acts
rationally. That is to say, making informed choices. Tied to the
second function stated above, the reasoning seems to be that
where there are positive disclosure requirements, information
thereby provided about goods and services will facilitate the
consumer in his decision making in the market place. Indeed, to
some,8 Consumer information and education is vital as an
alternative or supplement to regulation. The argument thus
posits that consumers must be provided with adequate
information enabling them to act wisely and responsibly.
There must be the recognition that those with low levels of
education and skills, income and the socially excluded are
particularly vulnerable in complex markets where a growing
amount of information is needed to make good choices.
Instances here include online transactions. This happens to be
one complex area that even most enlightened consumers would
still find difficult to easily understand and utilize. Equally there
is an appreciation that there may be a problem with there being
too much information which may be technical and meaningless
and that consumers need help to understand the impact of
products on their health, safety and environment. All these go
to show the predicament of the consumer even where there is
information disclosure expected to enhance the competitive
forces of the market.
What is therefore important is that not only must
information not be false and misleading, but it must also be
understandable and relevant to consumer’s need. With the
unavoidable presence of “vulnerable consumer”, there must be
the threat of regulatory action and enforcement when things go
wrong. One might describe this as the third way, between the
dominant regulatory role of the state on one hand, and the free
8. Cartwright, P.: Better Regulation in the UK? “The Better Regulation Task
Force/Review of Consumer Affairs”. Consumer Law Journal – 1998, 485 at 486.
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67
market philosophy on the other hand, which eschews anything
more than a minimalist role for Government. This is indeed the
view subscribed to by this writer, the co-existence of the
elements of regulation and deregulation (free market economy).
This is what elsewhere is labeled “focused regulation”.9
It however should be appreciated that the question of what
information is relevant to consumer needs and would suffice for
his protection is a dicey one. The truth is that there are millions
of consumers in the market for a particular product or service.
They may have their respective tastes, differences and
standards. In any event, what remains central to every consumer
anywhere in the world relates to prices, product quality,
quantity, value for money and safety standards etc for the
product or service in question. A situation where most
advertisements provide information simply to show that a
product now comes in new style does not in any way meet the
informational standards of the consumer. No matter the
dynamics of information requirement, the truth about the
performance of a product, its side effects and difference relative
to other or similar products should not be compromised. This
will be without prejudice to the continued power of regulation
of the government where appropriate in the interest of the
consumer. In this way, the consumer would be better
empowered to play his role in the exercise of his discretion in
the market place.
To further emphasize the need for enhancing the
competitive force of the market place, the question of positive
disclosure requirement and consumer education can be
complemented by an increased attempt to achieve an increased
consumer awareness and enlightenment.
This is in view of the fact that no matter the protective
measures put in place by the government to protect the
9.
Howells, G.: “United Kingdom’s Consumer Policy White paper – A step in
the Right Direction?” – Consumer Law Journal – 2000 P. 181 at 187.
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An Analysis of the Market Economy Approach to Consumer Protection
consumer, they cannot obviate the fact that the consumer is his
first protector. The quality of the consumer in any given
economy will seriously determine the ability of self-protection
of that consumer. In other words, the more uneducated,
unenlightened, illiterate and uninformed a consumer is as
opposed to an educated and enlightened consumer, the more the
likelihood of such a consumer falling victim of imprudent
shopping. In an economy that is market oriented where the
consumers’ role (shopping decision) is of paramount importance
as the driving force of the market there is therefore the dire need
to build a sophisticated consumer. That is to say, without
claiming to be exhaustive, a consumer that is educated,
enlightened, informed and literate etc.
This objective can be achieved through the regulatory role
of the numerous government agencies. It is necessary for such
agencies each to operate a consumer outreach programme.
These agencies will engage in the organization of seminars and
workshops. Television and Radio enlightenment programmes
as well as other interactive sessions between consumers and
producers. For these enlightenment campaigns to make any
significant impact, it must be taken to the grassroots so as to
reach all and sundry.
Furthermore, through consumer
organizations, such enlightenment campaigns can be enhanced.
The task of consumer enlightenment cannot be left only to
government. Government will have to seriously encourage the
formation of consumer organizations. There can be as many
consumer organizations as there are consumers of different
products and services. Thus, through these organizations,
willing consumers will avail themselves of the opportunities to
enlighten themselves.
Information, no matter its usefulness will make no sense to
an uneducated consumer. On the other hand, an educated and
an enlightened consumer will be much more prudent in his
shopping. Although there are some instances where government
NIALS Journal of Business Law
69
agencies undertake such enlightenment programmes,10 there is
the need for more. There has to be a renewed and more forceful
policy with target to get to the grassroots. Furthermore, there is
the need to empower the consumer in all ramifications through
focused regulation, and to enlighten and improve on the quality
of the consumer in the market place.
In another breath the question of enhancing the competitive
forces of the market place goes beyond merely providing rules
against unfair trade practices and positive disclosure
requirement. In any market at all, competition is stifled if that
market is not open to many operators. But most fundamentally,
in every market sector, the more the availability of the product
or service, the better the chances of competition among the
providers or manufacturers. In other words, if the product or
service in question is in short supply, there is then the tendency
to manipulate its supply so as to maximize profit. By so doing,
competition becomes stifled. To further ensure or enhance the
competitive forces of the market, government must come up
with a more renewed and pragmatic policy on increased/mass
productivity in all sectors. Increased productivity will imply
adequacy of supply, absence of hoarding, reduction of or
absence of price hikes and hence entrenchment of competition
where producers compete in efficiency, innovation and sales.
At the end of the day, the co-existence of the regulatory role of
the government and the forces of the market would have
provided a better market atmosphere and hence protection for
the consumer.
10. As when NAFDAC features jingles on the Network Television to enlighten
the public about expiry date of drugs. See also THISDAY Newspaper of
01.11.2002. The Consumer Protection Council organized World Consumer
day, which serves to educate the public. This however appears to serve only a
minute fraction of people in Abuja. The Nigerian Communications
Commission through its Consumer Affairs Bureau (CAB) organizes consumer
parliament in select states across the country and Abuja at which consumers
of telecom services interacts with service providers during which they air their
complaints and were equally enlightened.
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An Analysis of the Market Economy Approach to Consumer Protection
Market Economy: A Theoretical Analysis
The discussion under this head presents the theoretical
arguments as are assumed to be obtainable in a free market
economy. In the final analysis, it is the conclusion of this writer
that some of the arguments are mere assumptions and presents
an unrealistic scenario. For instance, the question of the
consumer being the driver of the market because of his prudent
shopping decision is faulty. The question of the importance of
the consumer in the production process and the market place
giving rise to the concept of consumer sovereignty, in the
opinion of this writer is untenable. Since competition is very
central to the success of a free market economy the prevalent
fact of market failures and other distortions largely denies this
economic system as the best protector for the consumer.
In every society, the question of what goods and services to
produce, how to produce them and for whom, occupies a very
central position in the minds of all stakeholders in the economy.
The truth is that an attempt at answering these posers will
provide an answer to the type of economic system regulating the
ownership and control of the society’s resources.11
Many economies answer these three basic questions through
a market system. The market system is based on free enterprise,
that is, one in which the basic decisions are made, not by some
central authority but by individual producers and consumers.
These producers and consumers all strive to achieve their own
goals. In doing so, they respond as best as they can to the
incentives which penalize or reward their activities.12 The
economic system, which seeks to answer these three questions
11. Popoola, A. O.: “Consumer Protection within the Framework of Economic
Liberalization: Impact of Privatization, Commercialization and Deregulation
on Consumers” in Ayua and Guobadia ed.: Political Reform and Economic
Recovery in Nigeria 2001 (NIALS Press: Lagos).
12. Obadan, M.: “The workings of a Free Enterprise Economy” as quoted in A. O.
Popoola Ibid P. 393.
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71
by relying on the market or price system, is generally referred to
as the free enterprise economy.
Economists thus argue that in this type of economy,
described as “free private enterprise system or competitive
private property capitalism,”13 economic activities are governed
by the price system under the working of supply and demand
forces. The free enterprise economy14, in essence, a market
economy, the coordinating mechanism setting the components
of that economy to work is the market mechanism, what Adam
Smith has called the “invisible hand”. It directs and coordinates the activities of millions of independent and dispersed
economic institutions, agents and units.15
The free market economy is principally distinguished by its
capitalistic nature and has such features as private ownership of
property and the means of production; self interest and the profit
making motive; reliance on the price mechanism as resource
allocator; free enterprise; competition and consumers’
sovereignty.16
The economic system thrives on the institution of private
property. It means that the owner of a firm or factory or mine
may use it in any manner he likes. The fact of private
ownership induces its owner to work hard, to organize his
business efficiently and to produce more, thereby benefiting not
only himself but also the community at large.
Meanwhile, the profit making motive as well as self-interest
serves as the working force behind the hard work to earn private
property.
13. Samuelson, P. A.: Economics (1982) (Mc graw Hill Book Company) P. 34.
14. Stanlake, G.F. et al Introductory Economics (1995) 6th ed. (Longman Group
Ltd – London) P. 18.
15. Ukpong, I.: “The Role of Public Sector in a Free Enterprise Economy” (1993)
A national one-day seminar held at the Nigerian Institute of International
Affairs on the 17th February, 1993 by the Nigerian Economic Society. P. 43.
16. Jhingan, M.L.: Microeconomic Theory (1997) 4th ed (Vrinda Publications (p)
Ltd.; Delhi) PP 76-78.
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An Analysis of the Market Economy Approach to Consumer Protection
The market and the price mechanism are reputed as the best
means of resource allocation. Profit being the difference
between outlay and receipt, (that is cost of production and the
selling) the size of profit depends upon prices. The larger the
difference between prices and costs, the higher is the profit.
Again, the higher the prices, the greater are the efforts of the
producers to produce the varied quantities and types of
products. On the other hand, prices depend upon the consumers’
choices of the various commodities. It is the consumers’
choices, which determine what to produce, how much to
produce and how to produce.
This has been eloquently captured by Obadan in the
following way:
Price serves a critical function in markets as they
signal information to buyers and sellers.
Consumers indicate to suppliers the amount they
are willing to buy at various prices and what their
demand for particular products is. Prices serve to
change the quantity demanded and supplied to
bring about market clearing. Self interest leads
suppliers to respond to the demand signaled (sic)
the market by purchasers. Firms are motivated
by the profit incentive to produce those goods,
which command a value on the market in excess
of the cost of resources used to make them. The
profit motive is thus what drives firms to allocate
resources to the production of the goods and
services consumers demand.17
Under a free market economy, competition is one of the
important features. The question of the private ownership of the
means of production and distribution, the realization of the
17. Popoola, A.O. op. cit P.
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73
function of the market and the price mechanism and the rational
behaviour expected of the consumer in the market place are
highly contingent upon the presence of a competitive market.
The idea is that where there is competition, producers who are
sloppy or not innovative will be forced to change or leave the
market as consumers shift their purchases elsewhere. By
extension, the competition is expected to be “perfect” where
certain assumptions are present. That is to say that there is
freedom of entry and exit from the market, homogeneity of the
products sold in the market; perfect knowledge about the nature,
value and prices of the commodities traded by all the economic
actors; there are numerous buyers and sellers in the market, such
that the activities of any one economic actor will have only
minimal impact on the output or price in the market, all the cost
of producing a commodity are borne by the producer and all the
benefits of a commodity accrue to the consumer that is, there
are no externalities.
Under these assumptions, consumers try to buy more at the
lowest prices, and producers endeavour to produce quality
products to gain the maximum. The profit motive induces
producers to increase their productive efficiency. The resource
owners also do their best in increasing production in order to
earn higher rewards. Competition thus becomes necessary in a
private enterprise economy to keep initiative constantly on the
alert, protect the consumer, and maintain a sufficiently flexible
price system. Whether or not these assumptions are realizable is
another thing and if not, the consequence on the consumer is
what we shall be turning too shortly.
There is also the notion of consumers’ sovereignty. As
noted earlier in Adam Smith’s postulation, consumption is the
sole end and purpose of production. Production cannot be
complete without consumption. Under this economic system,
economists argue also that the consumer is the King, expected
to drive the market based on his self-interest and rational
shopping decision. The consumer will only purchase what he
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An Analysis of the Market Economy Approach to Consumer Protection
needs and this will in turn determine what producers produce.
Producers try to produce variety of goods to meet the tastes and
preferences of consumers.
It need be stressed that the assumptions of a free market
economy, were they to be practicable would indeed present a
good platform for the consumer to be protected. The presence of
competition alongside the twin freedoms of consumers (as to
choice of consumption) and producers (as to choice of
production) will lead to the production of quality products, and
lowering of costs and prices. This is bearing in mind consumers’
interest in quality products (and hence safety standards), low or
appropriate prices and value for money.
Unfortunately however, the fact remains that these
assumptions under a market economy are hardly ever perfectly
attainable. To start with, competition, which is regarded as the
very basis of a market economy, has within it the tendency to
destroy competition, and lead to cut – throat competition. This
ultimately leads to the formation of trusts, cartels, and
combinations. Again, the profit motive which urges producers
to innovate, experiment, and adopt the modern technology
brings about a reduction in the number of firms actually
engaged in production. Only a small number of large firms are
left behind, and the small firms are eliminated in this process. It
thus tends to weaken the real spirit of competition and the price
mechanism.
Thus, where the market is no longer competitive or there are
few producers in a given market, such becomes a monopoly or
shared monopoly (a situation of few producers). Monopolies, of
course are antithetical to the free enterprise system because they
determine the price and the quality of the products, interfering
with the balance of supply and demand.18 A good example in
Nigeria relates to the operation and charges of the Nigerian
18. Simon, D. R. & Eitzen, D. S. Elite: Deviance, (1990) 3rd ed (Allyn and
Bacon: Boston) Chapter 3, At P. 88.
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75
telecommunication services. With the coming into existence of
more telecom companies operating especially the wireless
services,19 prices previously charged by existing operators in
that sector have dropped drastically. A case in hand is that of the
charges of Intercellular which by the year 2001, was charging
about a hundred and forty thousand (N140, 000.00) Naira. By
the year 2002, their charges dropped to thirty five thousand
naira (N35, 000.00).20 Generally, tariffs have also dropped
significantly since the introduction of GSM in the country. This
could never have been so if the sector had not been open to
competition. Today, depending on the network a consumer has
chosen, tariff regime could be as low as 20k-15k per second.
This is opposed to the 60k which used to be the case.
What this means therefore is that consumers are being
unduly exploited and made to pay far in excess than what they
ordinarily should have paid. In another breath, the
impracticability of the attainment of the conditions for a perfect
competition shows another inadequacy of this economic system
in protecting the consumer. For instance, the requirement of
perfect knowledge or information about the market is hardly
ever met. It will be difficult for a consumer who wants to buy a
fairly used car in Abuja to know the price variation comparable
to other parts of the country. A second hand car of the same or
similar make, model or quality sold in Lagos, Kano, PortHarcourt or Makurdi may not be the same price. Even though
there is also the further assumption that there are no preferential
treatments and all firms have identical cost structure, which
should mean in this case that the consumer wouldn’t bother
19. MTN, AIRTEL, ETISALAT, GLOBACOM, VISAFONE, MULTILINKS etc
in the operation of the Global System for Mobil communication (GSM).
20. Being one of the complaints about arbitrary charges by telecom operators,
made by consumers at a recent forum organized by the consumer Affairs
Bureau (CAB) of the Nigerian Communication Commission (NCC) in Abuja
on the 28th June, 2002.
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An Analysis of the Market Economy Approach to Consumer Protection
himself seeking information about where to obtain the lowest
price. In reality, the situation is the opposite.
Using the same example, the consumer perhaps would have
to pay and seek the services of an expert (mechanic/engineer) to
examine and certify the vehicle alright before having the
confidence to buy it. What this transcends into is that because
of this potential information failure, the consumer is made to
misallocate his resources and thereby incur transaction costs in
the search for information.
As noted above,21 information is very central to the
consumer for purposes of making rational shopping decisions.
Information failure thus justifies government regulation. This is
more so as transaction costs (information, time and trouble,
uncertainty of outcome) of enforcing individual consumer
claims may often outweigh the expected recovery. In which
case, private law system may fail either to deter socially
wasteful activity or to compensate for violation of rights.22 This
is where consumer groups can come into work as a team for the
interest of their members and minimize cost. In addition, there
could also be allowed class action or the introduction of small
claims court and trade association arbitration schemes to reduce
the cost of private enforcement23. As Kanyip had argued,24,
rules of civil procedure in Nigeria have recognized and provided
for representative action.25 This writer opines that this can serve
as a basis upon which to allow class action in Nigeria.
21. See discussion on functions of consumer protection, about particularly on the
second function.
22. Ramsay, I.: Consumer Protection: Text and Materials (1989) (Weidenfeld
and Nicolson: London) P. 37.
23. Ibid.
24. Kanyip, B.B.: Consumer Protection in Nigeria Law, Theory and Policy. 2005
(Rekon books Ltd, Abuja). Page 355
25. See Uniform High Court Civil Procedure Rules – Order 11 Rule 8; Federal
High Court Procedure Rules. (2009) Order 13 Rule 35(4); Benue State High
Court (Civil Procedure) Rules 2007 Order 17 Rule 4.
NIALS Journal of Business Law
77
Arguing further, instances of product differentiation
abounds. The use of trademarks or branding differentiates a
particular product for example beer. In the beer sector, you have
“Star”, “More”, “Rock”, “Life”, “Gulder” etc. The fact however
is that they perform substantially the same function but sold at
different prices. The same applies to detergents. What the
above discussion seeks to show is that one central aspect of a
market economy, competition, necessary to inure in the interest
of the consumer is rarely realizable as theoretically assumed.
Hence, the last conclusion in the opening of this discussion.
That is, the prevalent fact of market failures and other
distortions in a market economy, which tends to stifle
competition, is an indication that this economic system is not a
best protection for the consumer.
In any case, it will be hyperbolic to say that because of the
above failures, market economy is an impracticable system to
protect the consumer. This is the more reason why this writer
would prefer the existence and operation of a market economy
within the framework of regulation – simply dubbed by this
writer as Regulated Market Economy (RME). This conception
is for the purpose of emphatically underscoring the need for
government’s conscious and positive policy regulatory
measures upon which the market economy thrives. Given this
conception, there may be a thin line of distinction between the
concept and that of mixed economy. The later however refers to
a situation where both a public (i.e state) and private sector
(where non-government, firms and individuals) decide what is
produced26. The emphasis sought to be laid by this writer is
conscious and focused regulation.
We shall now turn to the other two conclusions and for
purposes of convenience, take them together. That is the issue
of the consumer being the driver of the market and hence his
sovereignty.
26. Stanlake, G.F. et al op cit P. 21.
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An Analysis of the Market Economy Approach to Consumer Protection
To start with, this argument presupposes the co-existence of
the features of a market economy and in particular, the
competitive forces of the market. Our arguments above
showing their shortcomings prove just how untenable the
assumption is.
Furthermore, consumers have to buy only those
commodities, which are manufactured and supplied by the
producers in the market. Irrespective of the desire of the
consumer, that is regarding the choice of what he wants to buy,
such choice will first be limited within the products available in
the market. In other words, a consumer has the right to choose
only among the options available in the market and not what
does not exist or is not produced by the producer. Hence
consumers have to buy only those commodities, which are
manufactured and supplied by the producers in the market.27
The majority of consumers are not rational buyers and often
ignorant about the utility and quality of products available at the
store or shops. For example, they get less nutritional value than
they should out of their expenditure on food because they buy
the wrong kinds of food; or they spend too little on food in order
to buy drink or fashionable clothes. Most consumers make
purchases without any cogent reason as to whether they need
them or not.28
All these are made possible and facilitated because
consumers are misled by advertisement and propaganda that
highly exaggerate about the usefulness of the products to the
consumers. The producer class who use psychology and play
on the intelligence of consumers therefore contrives consumer
wants and values. Rather than signal demand to the market,
producers invent products, push them into the market and with
the aid of advertisements and sales promotion, succeed in
27. Stanlake, G. F. et al Ibid P. 20.
28. Jhingan, M. L. op. cit P. 80.
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wooing the interest, patronage and consumption by the
consumers.
Again, consumers’ sovereignty has little meaning in a
system with unequal income distribution. This means that
wants which cannot clothe themselves in money are left
undetected and unsatisfied and the luxurious fancies of the rich
exert a stronger pull on the productive resources of the
community than the stark needs of the poor. Thus, consumers’
sovereignty has little relevance under a free market economy,
which is primarily a sellers’ market in which consumers have to
buy only those goods that are available at prices, which his
purse can afford.
Ramsay further emphasizes the inability of the consumer to
control or determine what to produce in the market by his
shopping decision.29 Talking about “Corporate discretion” to
produce only what a corporation chooses to produce, he asked,
can even a highly competent informed consumer vote for
precisely the product he wants? He went ahead to answer that it
is only if the corporation has taken the initiative to put the
product on the market.
This writer argues that in a regulated market economy (a
market economy existing within the framework of conscious
and focused regulation) government, in the conscious desire to
protect the consumer’s interest, should embark on the provision
of certain amenities or facilities which may not ordinarily have
been embarked upon, left to the discretion of the private
business. In other words, the role of the government here will be
in realization of the fact that there is need to consciously
encourage the production and provision of goods and services
essential for the consumer, the economy and the environment.
That is in circumstances (as discussed above) where producers,
some economic reasons, may not be economically motivated to
produce,
notwithstanding
their
importance
to
the
29. Op cit P. 56.
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society/consumers. This is usually done through price subsidies
and tax incentives etc. On the other hand, the government can
also consciously discourage the consumption of certain products
or services and by implication their production, which are found
to be capable of being injurious to consumers. This can be done
through the removal of subsidies, excise duties licenses etc. In
this way, production and consumption pattern will no longer be
left to be determined by the producer class whom, as we have
already pointed out above, has the capacity to do so.
So far, the discerning emphasis from the above discussion
has been embracive of market economy only in so far as it
exists within the framework of government conscious and
focused regulation. What this writer choose to call a Regulated
Market Economy (RME). This therefore calls to mind a
necessary consideration of the concept of regulation and the
ensuing issues and arguments that flow from it.
Regulated and Deregulated Economy
The term “deregulation” is used in its ordinary context as
opposed to regulation. It implies the elimination of
governmental control of business especially to permit free
markets and competition. The use of the term therefore accords
with the opinion of the free enterprise advocates who are
opposed to governmental involvement or regulation of business.
Conceptually, the term “regulation” has both a broad and
narrow meaning.30 The broad meaning extends the term to
encompass any government law or policy that affects the
economy. As in when the government at a point decided and
was solely operating the air transport business until recently
when the sector was deregulated. Also, as in when
30. Fels (1982): “The Political Economy of Regulation” excerpted in Ajai, O. &
Owasanoye, B.: “Regulation or De-regulation which way Nigeria?”
proceedings of the 32nd Annual Conference of the National Association of
Law Teachers held at the Nigerian Institute of Advanced Legal Studies, Lagos
from 10-13 May, 1994 under theme: Law and the Nigerian Society. P. 89.
NIALS Journal of Business Law
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government’s economic policy for instance is to close the
boarders or stop the importation of certain products so as to
encourage their domestic production.
Meanwhile, the narrow meaning limits the term to direct
government control or enterprise decision concerning prices, the
amount or quality of output, the nature of the production process
(for example, safety rules) and also include the regulation of
entry into an industry by licensing (for example as in the
licensing of more GSM companies to operate in the mobile
telecommunication sector as opposed to when it was NITEL’s
monopoly), import control and tariffs.
According to Ghai,31 control of the economy is in two
models that is, the regulatory model where the state administers
a variety of controls on the private sector to influence the
conduct of economic actors, who are private parties. The other
model is where the state actually enters into production and
involves itself in the management of the economy. The bottom
line is that central to the question of regulation is legislation. At
anytime, the intention is not to let things take their own course,
but to influence or control economic developments. Thus
regulatory measures are designed to affect the market
mechanism in a direction desired by the government. In other
words, what the regulatory agencies seek to affect is the market
mechanism.
Meanwhile, when the regulation of the economy or the
direction of economic development is left to be determined by
the market mechanism, deregulation is said to occur. In this
work therefore, the usage of the terms regulation and
deregulation is in its ordinary context. That is as to the
involvement or noninvolvement of government in the
determination of the development of the economy in a given
direction that would be acceptable to the democratic majority.
31. Ibid.
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An Analysis of the Market Economy Approach to Consumer Protection
Some arguments in favour of deregulation are predicted on
the assumption that the consumer is his best protector and that
market forces be allowed to shape the power relation between
consumers and producers. That the market is the best instrument
for consumer protection and that state regulation introduces
inefficiency, higher prices and ultimately does more damage to
the consumer interest. To this school of thought, when decisions
regarding what to produce, how much to produce, in what
proportion, the factors to be employed come from the higher
authority, which manages and regulates the industry, with the
industry depending on the central planning authority for final
decisions, the whole procedure results into red-tapism and an
unusual delay in executing decisions at the right time thereby
leading to inefficiency and loss in production.32 That with the
market mechanism, because the consumer acts rationally in the
market place (even though a mere assumption) by maximizing
his satisfaction and since the market influence producers,
consumers are in a position to discipline producers by their
buying decisions leading for example to lower prices.33
Regulation is therefore criticized as leading to
administrative costs and higher prices as producers comply with
directives. That moreover, rival products or the relocation of
producers may in fact drive out some products in friendlier
jurisdiction. This argument is most untenable. Rather, the
situation is even much more obtainable in a deregulated
economy. This is a situation where the production of goods or
services by producers tends to be concentrated only in areas
where there is more market for it because of the purchasing
power of the area. This is usually actuated by profit motive. The
only way there can be a conscious equitable distribution of
resources will be through regulation.
32. Jhingan, M.L. op cit (1998) PP. 85-86.
33. Ibid at P. 79.
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Furthermore, advocates of deregulation argue that
legislation is seen as less valuable than the common law in that
legislatures are usually not as concerned with ensuring the
efficiency of the market as in ensuring greater distribution of
wealth. That this is because common law relies on the actions
of private self-interested individuals acting in competition with
each other, and its remedies such as damages are similar to
those that would be generated by market forces.34
To start with, it is this writer’s view that these arguments
are not tenable. Beginning with the later part of the arguments,
it appears the arguments have completely failed to be sensitive
to the realities of the consumer problems especially within the
context of the free market economy. Consumer policy in an
atmosphere of a free market enterprise that presumes the
absence of market failures will be unfair and hence be defective
in its nature by failing to reflect practical realities. These
realities involve the fact of market failures itself, the inability of
the consumer to drive the market, the vulnerability of the
consumer and hence the disproportionate position which the
consumer stands with the producer in power relations. It is
these realities that underscore the phenomenon of consumer
protection. It is in realization of this fact or phenomenon that
consumer policy emphasizes the protection of the consumer –
the weak from market determined outcomes considered to be
unfair as well as serve as a distributive tool for the creation of a
more equitable society. This in essence implies that the
consumer is as concerned and interested in how wealth is
distributed. This all the more shows the reason why the
machinery of legislation can be used to achieve this goal. It is
therefore a wrong conclusion to argue that legislation is less
valuable than common law on the ground that legislatures are
34. Craston: “Regulation and Deregulation General Issues” (1982) 5 University of
New South W.L.J. 1.
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An Analysis of the Market Economy Approach to Consumer Protection
usually more concerned with ensuring greater distribution of
wealth.
In another breath, in the wake of the recent developments in
the global economy where the wind of general economic
recession blew across the globe resulting in the inevitable
intervention of the governments by way of economic stimulus
or bailout, it only goes to show that nothing is so sacrosanct in
the arguments about deregulation. If anything, it is evidence that
lack of proper regulation created room for market abuses by the
players in the market. It is therefore not surprising that a highly
capitalist nation like the United State of America is having to
seriously emphasize on the need for ground rules of regulation
if the market is to perform creditably. In one of his Wall Street
speeches, president Barrack Obama had this to say.
There are those who would suggest that we must choose
between markets unfettered by even the most modest of
regulations - and markets weighed down by onerous regulations
that suppress the spirit of enterprise and innovation. But if there
is one lesson we can learn from the last year,35 it is that this is a
false choice. Common-sense rules of the road do not hinder the
markets but make them stronger. Indeed, they are essential to
ensuring that our markets function and function fairly and
freely.36
In Nigeria, apart from the government decision to bailout
some banks involving hundreds of billions of naira, 37 the
government went ahead to enact the Asset Management
Corporation of Nigeria (AMCON).38 The corporation is
established for the purpose of efficiently resolving the nonperforming loan asset of banks in Nigeria. The corporation
35. Emphasis mine. The year in question being 2008, when America, like other
economies of the world was seriously hit by the global economic recession.
36. Assessed on www.huffingpost.com/2009/09/14/0bama-wall-street-speech_n_
285841.html Visited last on 29.07.2011.
37. op. cit. See foot note 2 above.
38. See AMCON Act 2010.
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indeed serves as a structure and platform by the government to
watch, regulate and where appropriate, intervene to help
strengthen banks with non-performing loans otherwise referred
to as eligible asset. In doing so, bank collapse could be averted
and depositor’s funds could be guaranteed.
Thus under the Act, where the Corporation acquires an
eligible bank asset, such eligible bank asset shall become vested
in the Corporation and the Corporation shall exercise all the
rights and powers and subject to the provisions of this Act,
become subject to all of the obligations of the eligible financial
institution from which the eligible bank asset was acquired in
relation to the bank asset, the debtor concerned and any
guarantor, surety or receiver, liquidator, examiner or any other
person concerned and the eligible financial institution shall
cease to have those rights and obligations.39
Meanwhile, the argument for regulation is predicated on the
fact that the market is characterized with a lot of imperfections
and failures. Hence, it cannot be trusted to redress the
imbalance, which currently exists between the consumers and
producers. The situation is even made worse when the
vulnerability of the consumer in the market place is considered.
This is as regards the disparity between the consumer and the
producer about knowledge concerning the features and technical
components of goods and service, as well as disparity of
resources between the two sides.40 This uneven bargaining
power tends to give the producer an edge over the consumer
which fact justifies regulation for consumer interest to be
protected.
In Nigeria in particular, the high illiteracy rate in the
country coupled with the developing nature of the economy
have been identified and advanced to make a case for
regulation.41
39. See Section 34 (1) Ibid.
40. Ramsay, I. (1989) op. cit PP. 33-34.
41. Kanyip, B.B. (2005) op. cit Pg 38.
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An Analysis of the Market Economy Approach to Consumer Protection
Above all, as it has already been pointed out in real markets,
consumers are no longer in a position to discipline producers in
accordance with their preference and thereby be the driver of
the market. The reality therefore being that producers dominate
the market in which case the consumers exist at the mercy of the
producers.
It is also not in doubt that the voice of the organized
industrial sector is more persuasive in the making and
implementation of legislation. The business class has the means
to put together an effective lobby to articulate its position in a
persuasive manner with all the necessary contacts including
even the legislature. The point being made here is that even
established principles of law that are consumer friendly have
been weakened in their effects. This probably may be as a result
of the financial might of the producer class. Hence, they can
afford the best legal services, assemble even the best expert
witness and whatever it may take to prosecute the case and have
the verdict in their favour. An example here relates to the
growing derogation from the principle/decision in the case of
Donoghue v. Stevenson42 which is not unconnected to a clear
case of producer hegemony over the consumer.
In Donoghue v. Stevenson, the basic principle is that the
manufacturer of a product owes a duty to take reasonable care to
make sure that the consumer of his product does not get injured
or suffer damage arising from the consumption of the product.
In the case a manufacturer of ginger beer had sold to a retailer
ginger beer in an opaque bottle. The retailer resold it to a friend
of the plaintiff who treated the plaintiff to its contents. When
the remainder of the ginger beer was poured out of the bottle, it
was found to contain the decomposed remains of a snail, which
had found its way into the bottle at the factory. The plaintiff, as
a result of the nauseating sight of the snail and of the impurities
in the ginger beer she had consumed, suffered shock and severe
42. (1932) A. C. 562.
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gastroenteritis. The majority of the House of Lords held that the
manufacturer owed her a duty to take care that the bottle did not
contain noxious matter and that he would be liable if that duty
was broken.
Although a number of cases have been decided in Nigeria
applying the principle in the Donoghue v. Stevenson with
success,43 equally quite a number of others have failed.44 This
is notwithstanding that in the latter case; such cases present
facts quite similar to that in Donoghue v. Stevenson. Hence the
conclusion that the producer class uses its might to dominate the
consumer in every way possible. In Chuma E. Onyejekwe or
Nigerian Breweries Ltd,45 the plaintiff drank a bottle of star
beer, brewed and bottled by the defendants and became ill. It
was alleged that the bottle of beer contained foreign bodies,
which could not have been there without the negligence of the
defendants. The defendants gave evidence showing in detail the
various stages of the brewing of the beer and the bottling of the
beer. The court found for the defendants on the ground that the
evidence adduced showed that there was no possibility of any
living organisms being in the bottle unless the defendants
tampered with it after the bottling. In his judgment, K.O. Anya
J. (as he then was), said: “I am convinced by the evidence of
this witness, that is D.W.I. that the beer and the bottle undergo
complete pasteurization and sterilization before the bottles leave
43. Such as Osemobor v. Niger Biscuit Co. Ltd (1973) CCHCJ 71; Nig. Bottling
Co. Ltd. v. Ngonadi (1985) 1 NWLR (pt.4) 739 Sc; Nig. Airways Ltd v. Abe
(1988) 4 NWLR (Pt. 90) 524 C.A. etc.
44. Such as Chuma E. Onye Jekwe v. Nigerian Breweries Ltd (unreported) AHC
E/129/72, judgment delivered on 1st June, 1973; Okonkwo v. Guiness (Nig)
Ltd & Anor. (1980) 1 PLR 583; Boardman v. Guinness (Nig) Ltd. (1980)
NCLR 109; Ogbidi v. Guinness (Nig) Ltd (1981) 1 FNLR, Ebelamu v.
Guinness (Nig) Ltd (1983) 1 FNLR 42; Eleazer Uzomba v. Guinness (Nig) Ltd
(unreported) PHC/232/78 judgment delivered on 11th March, 1980.
45. Supra.
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An Analysis of the Market Economy Approach to Consumer Protection
the factory and that in those circumstances, no living organism
can be found in the bottles unless afterwards tampered with”.46
What this therefore means is that even with the aid of the
generous maxin of res ipsa loquitur, injured consumers may
still have an uphill task proving the manufacturer’s fault. The
rest of the cases,47 though in four walls with Donoghue v.
Stevenson, have all returned a not liable verdict in favour of the
defendant/manufacturers.48 The above scenario shows the
extent of the dominance of the producer class in the market
place even up to the point of judicial interpretation of protective
laws. Unfortunately, the consumer is not with that might. The
unorganized nature of the consumer class does not afford them a
level playing ground to lobby or influence the appropriate
authority to protect their interest. Talk less of dominating the
producer class in the market. This is particularly made worse
given the diverse nature of the interest of the consumer. It is
either the consumer’s interest is very small for him to bother
about, or that the interests are so different in nature or that some
consumers are not even interested to the cause. The combined
effect of all these is that it weakens the strength and the
influence that would have been mounted by the consumer class.
This weakness of the consumer tends to be the strength of the
producer.
The implication of the foregoing is that an unregulated
market is rather capable of creating monopolistic market in
certain sectors. The existence of such monopolies in turn
provides the platform on which companies indulge in certain
restrictive practices or agreements. In the case of Pepsico v. The
Coca-Cola Company,49 the court held that the practice of Coca46.
47.
48.
49.
Ibid.
As listed in note 39 above.
See generally Kanyip, B.B. (1997) op. cit. PP. 368-402.
1998 U.S. Dist. LEXIS 1340 (S.D.N.Y. 1998) – quote in Barnes, A. J. et al
Law for Business (2002) 7th ed (Mc Graw – Hill Higher Education – U.S.)
PP. 876-877.
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Cola in refusing to deal with and threatening to deal with
independent food-service distributors who wish to distribute
Pepsi was anti-competition and aimed at creating and
maintaining monopoly. A typical example again relates to price
fixing. A situation where there is explicit agreement among
competitors to keep prices artificially high to maximize profits.
Conclusion
In the face of these numerous and compelling circumstances, it
becomes imperative that government be involved via a
regulatory policy to correct the imbalance that exist between the
producer and the consumer. This is very necessary especially as
the protection of the under privileged in power relations, like
consumers and workers, helps to keep free enterprise acceptable
to democratic majority. Furthermore, through the
instrumentality of regulation, there is protection for honest
enterprise against dishonest competitors by providing against
fraud and deception, industrial espionage, sabotage or
corruption etc.50
The truth therefore is that the effectiveness of the free
enterprise system itself has to be dependent on government
regulatory role in just the same way the consumer needs
government regulatory role for his protection. Accordingly, if
the traditional economic model of the role of the free market
economy in protecting the consumer and the public interest
against overcharging and securing the optimum allocation of
resources is to have any meaning at all, it is clear that some
intervention is necessary. This will be both to control the growth
of monopoly power by single companies, and to prohibit
restrictive agreements between those firms, which should in
50. Stretton, H. & Ochard, L. Public Goods, Public Enterprise, Public Choice:
Theoretical Foundations of the Contemporary Attack on Government (1994)
(St. Martins’ Press: New York) P. 195.
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theory be competing with each other.51 This conclusion gives
credence to this writer’s concept of a regulated market
economy.
51. Hadden, T.: Company Law and Capitalism Company (1980) (Weldenfeld &
Nicholson: London) 2nd ed. P. 487.