This holiday season, consumers will be more wary in their choice of gifts, especially those bearing a "Made in China" label. The recall of more than 20 million tainted toys along with other hazardous products has put consumers on notice that they cannot trust government regulators to ensure product safety.
In the age of globalization, the relatively small staffs and budgets of the Consumer Product Safety Commission and the Food and Drug Administration make it impossible to inspect all but a small percentage of imports as well as domestic products.
Congress hopes to remedy this condition by enacting legislation such as the Consumer Product Safety Modernization Act of 2007, which would increase funding for the CPSC, ban products with even small traces of lead and require third-party testing and certification for selected children's products. Other proposed legislation would impose user fees on imported food to fund inspections and would require U.S. manufacturers to obtain a "recall responsibility certificate" to ensure they have the means to cover the costs of recalls.
The danger is thinking that such legislation can bring about a perfectly safe environment or that it can substitute for a self-regulating market, in which firms that violate consumers' confidence go bankrupt. If the government had perfect information, it could improve upon the market, but that is not the case.
The role of government is to safeguard private property rights and, thus, to protect people against fraud and violence. But an overzealous government that tries to keep all bad products off the market is likely to err by keeping too many good products off the market. It is increasingly costly for government to monitor every product. The only viable alternative is to allow private agencies to supplement government regulation to ensure the optimal amount of safety - that is, the amount that is worth what it costs.
Former FDA deputy commissioner Scott Gottlieb noted that "the FDA cannot be everywhere, every time a risk arises, especially as the supply chain for both food and drug products continues to grow more diverse and more global. Ultimately, (the) FDA needs to enable companies to be inspected by reputable private third parties that are certified by the agency."
The execution of Zheng Xiaoyu, former head of the Chinese State Food and Drug Administration, for taking bribes while approving deadly drugs and lead-tainted toys is a stark reminder that government oversight does not guarantee product safety. Even an advanced economy like the United States can fail to prevent hazardous products from entering the market.
Neither the government nor the market will lead to perfectly safe toys, pet food, toothpaste, seafood or drugs. Achieving 100% safety - zero risk - is not an option, and utopian solutions to socioeconomic problems have always proved to be disastrous.
The danger is that new legislation could be a veil for protectionism, as special interests try to gain advantage in the domestic market by restricting imports and also by handicapping smaller domestic firms by increasing their regulatory costs.
U.S. Ambassador Alan Homer, special envoy for China and the Strategic Economic Dialogue, said earlier this year that "safety requires continuous improvement, but it's important that any government policies in this area . . . not be protectionist."
In the U.S., Europe and other market economies, brand names are valuable and companies invest to ensure their long-run reputations. The culture of entrepreneurship, a transparent rule of law and competition help guarantee that innovation and product safety go hand in hand.
In China, the absence of a genuine rule of law and widespread private property rights means there is less concern with consumer welfare than there would be in a full-fledged market economy. Executing one public official or even several will not get to the core of the problem - namely, the need for fundamental institutional change that protects both personal and economic freedom.
Congress, meanwhile, should not forget the virtues of the free market and that, in the pursuit of safety as in all things, "the best is the enemy of the good."