"Safety and Security" and True Consumer Benefit: No Excuse for Government Intervention

Hideo FUKUI (Professor, National Graduate Institute for Policy Studies)

Once some social problem arises in Japan, it is often argued that "governmental regulation is too weak" or "the abuse of freedom by corporations should not be allowed." Although it is important to realize safety and security and protect consumer's benefits, using wrong means would likely reduce rather than enhance the true benefits of consumers and the general public. Strengthening governmental intervention often hurt those who are weak in social standing, while helping those who have strong vested interest in the economy and society.

According to our study of "law and economics," the roles of the government are to correct market failures, and to lessen unfairness by helping the poor for realization of social welfare. The latter depends on value judgment, whereas the former can be clearly defined and the government is only allowed to adopt the following five kinds of policies: (1) provision of public goods (national security, diplomacy, etc.), that cannot be supplied due to the free ride problem, (2) correction of externalities (environment policies, education subsidies, etc.), where the benefits or costs spill out of market transactions, (3) elimination of informational asymmetry (building code and inspection system, professional licenses, etc.), where suppliers tend to have better information than consumers about goods and services, (4) reduction in transaction cost (judicial system, redevelopment framework, etc.), where too many people are involved to secure voluntary actions, and (5) regulation of monopoly and oligopoly (antitrust law, regulations in electricity and communications, etc.), where inefficiency results from the market power of corporations. Needless to say, even in these areas, government failures must be avoided, and private enterprises should be utilized, whenever possible.

We can now examine whether the criteria explained above are met by recent policy measures that have been introduced in the pretext of realizing consumers' safety and security. The following are some of the recent cases that we should be concerned about.

First, recent scandals involving the education council in Oita Prefecture (manipulating the results of qualifying tests for teachers) betrayed people's trust in public education as a "safe" means to offer a certain level of educational quality in the nation as a whole. Although there may be good reasons for the government's financial support and the system of compulsory education for children as a merit good with externalities, many of the education councils in charge of public education seem to be run by insiders (school administrators and teachers) only and completely out of line from the social viewpoint. This has resulted from the isolation of education councils from local political leaders and parliaments that are representing the people's will.

Second, there is a problematic policy argument for prohibiting employment agencies to dispatch daily workers on the grounds that those workers tend to get involved in accidents due to the dangerous nature of their work assignments and many of them are adding to the "working poor" class in Japan. However, prohibiting daily worker dispatches in general would narrow occupational choices for workers, as many of them prefer to work on the daily basis rather than becoming regular workers, according to a recent government survey. It could not create more regular work anyway, and would definitely harm workers unless the bias in labor laws in favor of regular workers is corrected.

Third, another problematic measure is being adopted by the Ministry of Land, Infrastructure, Transport and Tourism to strengthen regulations on entry and supply in taxi business on the grounds that deregulation has led to increasing traffic accidents and decreasing wages for taxi drivers. However, evidence shows that both the traffic accident rate and the wage rate in tax business have been stabilized since regulations on taxi supply were lifted in 2002. Strengthening regulations would benefit existing taxi drivers and companies, while hurting those who wish to enter the industry, thus widening gaps among workers.

Fourth, there are some communities and local leaders that are trying to limit nighttime business hours for convenience stores by asking store managers to "restrain" themselves. The rationale for such a measure may be to lessen the burden on the environment and to encourage a "normal" lifestyle. However, its effect on the environment would likely be minimal, compared to nighttime TV broadcasting and all-night factory operations, while limiting business hours for convenience stores would benefit other types of retail stores and hurt hard-working consumers and convenience store managers. Furthermore, preaching about people's lifestyles is not something the authorities should do, but rather infringement on individual values protected by the constitution.

Fifth, an increasing number of communities are adopting regulations on the construction of "one-room" condominiums mainly for single people on the grounds that they often violate rules for garbage disposal and collection. However, the issue of people's manner should directly be dealt with stronger rules and enforcement, and must not be used as a pretext for regulating construction activities, which would violate private property rights and limit the freedom of residential movement. Such regulations tend to hurt single people who are often in a socially disadvantaged position, and thus widen gaps between privileged and underprivileged people.

Sixth, the Ministry of Health, Labor and Welfare is trying to prohibit the Internet sales of drugs by insisting on the "principle of face-to-face sales," which is not stipulate by law in the first place. This is a kind of backlash by a special interest group that would like to undo deregulation of drug sales in 2006. Reregulation in this area would hurt relatively small, entrepreneurial drug stores and suppliers as well as those consumers who have so far been purchasing drugs on the Internet without trouble.

In conclusion, true safety and security and real consumer benefit cannot be protected by loudly arguing for it or asking for governmental intervention. Such intervention under the pretext of consumer protection tends to harm those who are socially weak, while enhancing the power of special interest groups as well as their fellow bureaucrats. We can proud of our values protected by the Japanese Constitution to the world, and should prevent any move away from our healthy society, where individual rights cannot be violated by any authorities. "Escape from freedom" means a road to totalitarianism.

(The original Japanese article appeared in the August 26, 2008 issue of Nihon Keizai Shimbun)