The Consumer Product Safety Improvement Act, a bill signed into law in 2008 in response to the Year of the Recall, is generating quite a bit of controversy for a measure designed to protect children from lead and other unsafe consumer products. Thrift and resale shops, along with small toy manufacturers, have complained since the law's passage that its ban on the manufacturing and sale of products with more than the tiniest amount of lead and its requirement for third-party testing would drive these small establishments out of business.
In essence, the criticism is that the CPSIA's regulation of children's products is both too strict and overly broad because it includes a comprehensive ban on the manufacture and sale of everything from older children's books to toys and clothes. A June Reason magazinearticle outlines how "hipster moms" -- owners of mom-and-pop toy shops -- and conservative politicians are uniting against the repressive "regulatory state" imposed by the law. Mother Jones blogger Kevin Drum, no right-winger, called the ban "draconian."
To add insult to injury, Reason's blog Hit and Run passed on word from the AP earlier this week that the Consumer Product Safety Commission had permitted Mattel, one of the biggest culprits during the Year of the Recall, to use its own laboratories in countries like Malaysia and Mexico to fulfill the law's mandatory testing requirements. Reason concluded that Mattel's lobbying, which resulted in a provision allowing these in-house labs to be certified by the CPSC, has given Mattel "a cost advantage on mandatory testing, and a handy new government-sponsored barrier to entry for its competitors." Drum wrote, simply, "this just stinks."
Proposed changes to the law that would exempt the small toymakers and resale shops from the CPSIA's requirements seem reasonable. A food safety bill passed by the House in June included exemptions for farmer's markets and other direct-to-consumer sellers. Plus, consumers who shop at thrift stores usually know that they are buying a product whose quality is degraded by age or use and might be dangerous: the type of shop itself provides a signal to consumers about what they are purchasing. If they are concerned about toy safety, they can go elsewhere.
And yet, there is something suspicious about the battering that the CPSIA is taking. Indeed, in recent months complaints of "statist" regulation have become more frequent as conservatives complain that bureaucrats are entering parts of our lives that were previously sacred. For instance, the financial services industry worries that a Consumer Product Safety Commission would stifle financial innovation, though we -- and economists -- are at pains to describe exactly what financial innovation has done for us recently. Regulation has once again become a whipping boy that cannot possibly improve consumers' lives, but can only create "barriers to entry" for small businesses.
I can understand the concerns of the small toymaker. But let's not forget that children's products that contain lead are dangerous. Let's not assume that the CPSC is unyielding to toymakers' concerns when the agency has issued statements (even if less than crystal clear) that it will not enforce the CPSIA ban against the children's products like children's books that contain lead but have never caused lead poisoning. Let's also not forget that not everyone who shops at a thrift store is a "hipster mom" who can shop elsewhere: should we not protect consumers who shop second-hand out of necessity?
The libertarian "gotcha" in the CPSIA is the story about the certification of Mattel's labs. The lesson is that regulation inevitably has significant unintended consequences that hurt the small guy and that its purpose is inevitably contorted to the benefit of the big guy with the resources to lobby.
As compelling as this story is, though, it is incomplete. Prior to the CPSIA, Mattel would certify the safety of its children's products only if it felt like it and always in the lab of its choice. That is, the libertarian preference existed prior to the CPSIA and the result was a year in which Mattel had to recall 13 products. Now, the Consumer Product Safety Commission must certify that the labs used by Mattel actually meet the Commission's safety standards. In fact, the CPSC disapproved one of Mattel's labs that applied for certification. Previously, Mattel's cost-advantage came from outsourcing manufacturing and testing services and fabricating faulty and dangerous products. Now, its cost-advantage must come from manufacturing quality products that meet CPSC standards.
This is not to say that Mattel did not exert inappropriate or undesirable influence over the CPSC or to downplay the concerns of small businesses. But the suggestion that regulation always distorts the market in ways that harm both consumers and producers is wrong. The goal is better regulation, not less.