The Political Economy of Consumer Protection: an Examination of State Legislation

• DOI: 10.1177/106591298704000212
• Published date: 01 June 1987
• Author: Kenneth J. Meier
• Date: 01 June 1987
• Subject Matter: Articles

THE POLITICAL ECONOMY
OF CONSUMER
PROTECTION: AN EXAMINATION
OF STATE LEGISLATION
KENNETH J. MEIER
University of Wisconsin-Madison
INCE
1976 the locus of regulatory responsibilities has shifted dramat-
~~~ ically. With the Carter-sponsored economic deregulation and the Rea-
S gan relaxation of enforcement, the federal regulatory effort can be
categorized as stable or declining (Ball 1984). Few federal efforts have been
cut back as much as consumer protection. The Federal Trade Commis-
sion has become more market oriented; the Consumer Product Safety Com-
mission now emphasizes voluntary controls; and the National Highway
Traffic Safety Administration has become pro-automaker (Claybrook 1984;
Pertschuk 1982). Consumer protection, however, has always been a regula-
tory policy area in which the federal government shared jurisdiction with
the states. As the federal government withdraws from efforts that protect
consumers, the activities of state governments may become more important.
This research has two purposes: to examine state-to-state variation in
the laws regulating consumer transactions, and to offer new indicators of
important, but difficult to measure, concepts in policy analysis. Consumer
protection policies will be incorporated into a general theory of regulation;
policy is hypothesized to be a function of industry pressures, consumer
groups, bureaucratic forces, and elected officials. These four factors deter-
mine consumer protection policy within a policy environment that is sali-
ent but not complex. Hypotheses derived from this theory are subjected
to empirical tests with a fifty-state analysis of twenty-two state laws.
A THEORY OF REGULATION
Four previous studies have addressed the status of state-level consumer
protection laws. Ford (1977) in a bivariate analysis found that consumer
protection was positively related to median income, retail sales, and me-
dian education, and negatively related to Southern region. Sigelman and
Smith (1980) derived a causal model of consumer protection policy; con-
sumer
protection was best explained by median income, legislative profes-
sionalism, and political culture. The third study was a logit analysis of four
consumer laws -
the holder-in-due-course law, the cooling-off law, mo-
Received : June 24, 1985
lst Revision Received: February 2, 1986
2nd Revision Received: May 28, 1986
Accepted for Publication: May 30, 1986
NOTE: an earlier version of this paper was presented at the annual meeting of the Western
Political Science Association, Las Vegas, Nevada, March 28-30, 1985. The author would
like to thank several anonymous reviewers for their helpful comments.

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bile home sales regulation, and drug advertising. Oster (1980) argued that
these laws were explained by a series of surrogate indicators that reflected
the size of industry or the strength of consumer groups. Appleton (1985)
examined both adoption of state laws and employment in consumer agen-
cies. Using a supply and demand framework, she found consumer protec-
tion laws were adopted by wealthy states.
While interesting these studies of consumer protection policy need to
be integrated with a theory that explains why various variables are cor-
related with state law adoption. Because consumer protection policies are
government efforts to restrict the behavior of individuals who sell goods
or services, they are classic examples of regulation (Mitnick 1980). As such,
well-established theories of regulation can be applied to the consumer pro-
tection area to integrate past findings and set future findings within a the-
oretical framework. Empirical studies of regulation suggest four key actors
that must be considered in explaining regulatory policy - the industry,
consumer groups, regulatory bureaucrats, and elected officials.
Industry Influence
Industry influence on regulatory policy has received more attention than
any other factor (Quirk 1981; Bernstein 1955; Stigler 1971). Economists
in particular have adopted the view that &dquo;regulation is acquired by the
industry and designed and operated primarily for its benefit&dquo; (Stigler 1971:
3; see also Posner 1974; Peltzman 1976). Using terminology based on the
supply and demand logic of economics, this view argues that in order to
survive regulators will supply &dquo;regulation&dquo; to meet industry demands for
favorable policy. Industry control of regulatory policy, therefore, can be
viewed as a result of group competition; industry’s superior resources and
its concentrated attention allow it to outbid weaker consumer demands.
Although the supply and demand formulation of regulatory policy has
dominated economic studies, it was neither new nor innovative to political
scientists. Pendleton Herring (1936) argued that business interests controlled
the Federal Trade Commission, the Federal Communications Commission,
and several other government agencies. Samuel Huntington (1952)
documented the capture of the Interstate Commerce Commission by rail-
road interests. Marver Bernstein (1955) generalized this phenomenon to
all regulatory agencies with his life-cycle theory of regulatory policy. Ar-
guments that industry seeks regulation for its own benefit have been ap-
plied to interstate commerce (Kolko 1965), communications (Sabatier 1975),
air transportation (Behrman 1980), and public utilities (Gormley 1983b).
In fact, the economic supply and demand hypothesis that regulatory policy
reflected the competition between interest groups is little more than main-
stream pluralist political science (Truman 1951).
1

Both Oster and Appleton use an "economic" theory of regulation. Appleton does an ex-
cellent job linking theory to data but finds few significant relationships. Oster, on the
other hand, bends her results in many directions to fit Stigler’s (1971) view of regula-
tion. For example, Oster (1980: 49) uses an industry variable (number of retail sales
outlets) as a consumer indicator and a consumer indicator (proportion of population
in poverty) as an industry pressure indicator.

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345
A second stream of research on industry’s regulatory impact takes a
different view. It argues that industry does not seek regulation and that
after the imposition of regulation, industry is unable to control public policy.
The Occupational Safety and Health Administration was created over the
opposition of manufacturers who preferred regulation by the Department
of Commerce if at all (Kelman 1980). The National Highway Traffic Safety
Administration, the Environmental Protection Agency, and the Consumer
Product Safety Commission were all created or strengthened over the op-
position of industry groups (Meier 1985; Vig and Kraft 1984).
These two streams of literature are not irreconcilable. Industry should
be viewed as a rational actor; industry groups will favor beneficial regula-
tions and oppose restrictive ones. In addition, industry might simultane-
ously oppose and support regulation. Too often the literature assumes that
industry is monolithic and supports a single viewpoint. Industry groups
are frequently found on both sides of a regulatory issue. Kalko (1963) dis-
covered that large meatpackers supported the Meat Inspection Act of 1907
in order to protect access to European markets while small meatpackers
opposed the law. Similar conflict was apparent in airline deregulation, with
United Airlines as early supporter, and banking deregulation, with large
banks favoring greater competition. The literature, therefore, suggests two
competing hypotheses:
H, Industry supports greater regulation, therefore, the relationship between in-
dustry resources and the number of consumer protection laws is positive.
H2 Industry opposes regulation, therefore, the relationship between industry
resources and the number of consumer protection laws is negative.
Consumer Groups
Few areas of regulation exist without consumer advocates who press
interests broader than those proposed by industry (J. Berry 1977; 1984;
Scholzman 1984; Salisbury 1984). No study of automobile safety regula-
tion, for example, would be complete without reference to Ralph Nader’s
s
Center for Auto Safety. Consumer groups can easily fit within the econo-
mist/pluralist view of regulatory policy (see Peltzman, 1976). They serve
as competitive counterweights to industry groups; their influence on regula-
tory policy should be a function of the resources they possess. Consumer
groups will favor greater regulation or, in this specific instance, the pas-
sage of more consumer protection laws.
H3 Consumer group resources are positively related to the passage of consumer
protection laws.
Regulatory Bureaucrats
If regulatory bureaucrats were simply neutral individuals who responded
to interest group pressures, then industry groups would always dominate
regulatory policy because they have greater resources. In-depth analyses
of regulatory policies, however, reveal that a variety of bureaucratic fac-
tors exert an independent effect on regulatory policy. The values of agency
bureaucrats (Kelman 1980; Mazmanian and Sabatier 1980), the leader-

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ship ability of individual regulators (Behrman 1980; Brown 1984), the skills
of agency personnel (Quirk 1980), and professional norms (Culhane 1981;
W. Berry 1984) have been linked to regulatory policy. These analyses of
regulation tie into the well-developed field of bureaucratic politics that has
long argued that bureaucracy was a force in the policymaking process
(Rourke 1984; Long 1949).
Bureaucratic actors should favor policies...