‘Protecting’ consumers by forcing them to pay more
A Depression-era trade law – now the subject of debate in the West Virginia Legislature – is a reminder of how “consumer protection” laws often do little to protect consumers and much to protect influential businesses from competition. In West Virginia, some legislators are fighting to protect consumers’ “right” to pay prices that can be much higher than those found in some nearby states.
In the 1930s, the state passed the Unfair Trade Practices Act, which forces retailers to mark-up the price of most items by at least 7 percent and limits their ability to slash prices to win over new business. The boogeyman of the day was the now-bankrupt A&P grocery chain. Legislators feared the stores would come into small towns with lower prices and better selection, drive the mom-and-pop stores out of business and then hike up prices again.
Ironically, A&P ultimately was undermined by bigger and more modern grocery stores, although it had a good 156-year run. That’s how it works in a market system: consumers shop at the places they like best and those that can’t keep up go by the wayside. Creative destruction is tough for businesses, but the customer wins out. In reality, there’s plenty of room for businesses of every size and variety to flourish. But smaller retailers are still often taking that long-debunked approach of using government to keep out the competition. These days, big-box stores have replaced A&P supermarkets as the new villain.
And sadly, the legislative debate in Charleston sounds as if it hasn’t progressed much from the 1930s.
“We always talk about small businesses in West Virginia and what do we do to help them?” asked state Sen. Sam Cann, D-Bridgeport, in a 2014 debate over legislation that would soften the minimum-selling price restrictions, as quoted by West Virginia Public Radio. “I believe that we have a lot of small businesses that could be harmed if we take this action. I worry about Ace Hardware in my neighborhood competing with Lowes and Home Depot. I worry about Food Fresh staying open when competing with Sam’s.”
At least he was clear about the real purpose of the law – protecting businesses from competition, rather than protecting consumers from price gouging.
The current Legislature is wrestling with S.B. 259, which was designed to finally reform the Unfair Trade Practices Act. Unfortunately, the measure has been amended so much it would hardly make much difference, even if it does pass. It continues the 7 percent mark-up. It does remove the fuel tax from the equation that calculates the mark-up, but that means virtually nothing to consumers.
Really, the state needs to ditch the mark-up rule and let the price for gasoline and other retail items fluctuate according to the market. Mountain State observers say there’s still time to amend the bill to at least remove the 7 percent mark-up from gasoline sales. Other states with such rules should ditch them, too.
Here in California, the state “protects” consumers by requiring a special gasoline formulation, which greatly reduces competition and assures that our state’s consumers pay among the highest-in-the-nation gasoline prices. Thanks so much the protection. Such rules are the result of environmental regulation, whereas West Virginia’s defenders of mandated higher prices are still spouting long-debunked economic arguments.
The West Virginia legislation explains “the purposes of this article are: (1) To safeguard consumers from the creation of monopolies by prohibiting predatory pricing; (2) to foster market efficiency; and to protect market competition.”
That language is positively Orwellian, when we consider it does nothing to change a system under which government rules force consumers to pay higher prices, destroy market efficiency and protect businesses from market competition. At least it’s more evidence that, when consumers hear that the government is going to “protect” them, they ought to run in the opposite direction.
