Creating Confident Consumers

The Role of the Ministry of Consumer Affairs in a Dynamic Modern Economy

May 2003

Previous Page / Table of Contents / Next Page

1. Key Conclusions

• So What Is the Role of a Ministry of Consumer Affairs in a Dynamic Modern Economy?
• So What Does This All Mean?

This section identifies the Review Team's major conclusions regarding the strategic direction of the Ministry of Consumer Affairs, what this means for its role, and what it needs to focus on to achieve this role.

Perhaps the most critical question the Review team asked itself is What is the Ministry (on behalf of government) seeking to achieve? Put another way, what outcome should the Ministry be working towards? The Review Team has concluded that the Ministry should be seeking to create an environment in which consumers transact with confidence. What does this mean? Ultimately that, when consumers purchase a product or service, their reasonable expectations of that transaction will be met and, if not, consumers will have access to effective redress.

Consumers may have a variety of expectations, around issues such as safety, quality (relative to price), performance, quantity and price. So for example, when purchasing an appliance consumers are likely to expect that it is safe and will function as expected. Similarly, parents are likely to expect that the toy or baby equipment they have purchased is fit for the purpose and safe. The regulatory framework for consumer safety is designed to ensure this expectation is met, and educational campaigns inform consumers of their responsibilities regarding safe use and proper maintenance of equipment and appliances.

So what is the primary reason why consumers don't get what they expect from a transaction (or in other words get a bad deal)? Having reviewed a number of different ways of thinking about consumer issues, the Review Team has concluded that information barriers are the major reason for the gap between what consumers expect and what they get from a transaction. This is referred to in the report as an "information-based" framework for thinking about consumer issues.

The causes of these information barriers are many and varied. For example, information might be costly to obtain and difficult to interpret. An imbalance of information between consumers and suppliers (about a car or a credit contract, for example) may provide scope for suppliers to take advantage of the consumer. Consumers may simply underestimate the value of information about a particular product or service. Their background and previous experiences shape their likes and dislikes, the way they interpret and use information and the way they make decisions.

So is there a link between consumer policy and economic development, and if so, what is it? The Review Team has concluded that creating an environment in which consumers can transact with confidence is critical to a thriving, innovative economy. Consumers have a vital part to play in the development of dynamic and competitive markets through their purchasing decisions. They satisfy their own needs as individuals. Their collective decisions also help ensure competition amongst suppliers. Consumers who use information to make sophisticated choices and demand high quality products and standards of service will stimulate providers of goods and services to innovate as a means of improving their quality and efficiency. In addition, through providing incentives for suppliers to focus on consumer expectations, consumer policy provides an additional stimulus for product and service improvements.

As consumers, products and services, and ways of doing business change so do the challenges facing consumer policy. The Review team has identified a number of key challenges for consumer policy in the next 5-10 years. These include:

• the changing age and ethnic profile of consumers
• potential shifts in attitudes amongst consumers themselves
• changing market practices resulting from new technology, but also simply from the ways suppliers adapt products, services and behaviour to attract and retain customers and in response to the way markets are designed
• how best to approach information "overload" issues
• globalisation - the implications of cross-border transactions for New Zealand consumers and overseas consumers of New Zealand goods and services. The interaction of consumer policy with trade policy generally will become an area for increased focus.

Given the wide range of issues that the Ministry of Consumer Affairs could become involved in, the Review Team has developed some guidelines for involvement to help determine where the Ministry should put its effort. Essentially the message behind the guidelines is the need to focus the Ministry's effort on those consumer problems and issues that are likely to make the biggest difference for consumers as a whole.

So What Is the Role of a Ministry of Consumer Affairs in a Dynamic Modern Economy?

The Review team has concluded that the Ministry's primary role is to create an environment that is conducive to good and accurate information flows been suppliers and consumers so that consumers can transact with confidence. This is fundamentally about developing, or assisting in the development of, the rules (whether self-regulatory or regulatory) that govern the behaviour of consumers, suppliers, institutions (such as the Commerce Commission) and markets in general so that the gap between what consumers expect and what they get from a transaction is as small as possible. For example, the Fair Trading Act is designed to ensure that consumers are not misled about what to expect from a transaction. The Weights and Measures Act is designed to ensure that consumers get the quantity of goods that they expect. Good consumer policy should improve consumer's estimates of the value of information or reduce the cost of information to consumer's (or both).

The Ministry also has an information delivery role with respect to consumer and supplier generic rights and responsibilities under consumer law, some consumer safety issues and for some targeted groups of consumers.

So What Does This All Mean?

The review team concluded that "nothing was broken" within the Ministry. However, there are a number of issues that the Ministry must address in order to ensure:

• effective results for consumers
• businesses understand and meet their obligations under consumer law
• the consumer/trader environment contributes to a sustainable increase in economic growth.

Particularly, in order to deliver on this role into the future the Review Team has concluded that the Ministry needs to:

• strengthen its policy capability
• ensure that policies and programmes are informed by an in-depth understanding of consumer and trader experiences and behaviour and "what works for whom" by focusing on:
  • fully exploiting the ability of the operational arms of the Ministry to gather "intelligence" about consumer issues
  • strengthening the links between policy and operations, particularly those between the Policy Team and the Consumer Information Service
  • better utilising and extending its networks and contacts with consumers and businesses
  • improving access to and addressing gaps in consumer data
  • further developing its capability to research or contract research on consumer issues
  • enhancing its ability to monitor and evaluate the impacts of consumer policy (including enforcement, compliance and redress policies and their application in practice) on consumers and society in general.
• build better links with the rest of the Ministry of Economic Development in order to gain leverage from the wider organisation and ensure that a consumer perspective is taken account of in economic development policy
• examine the impact of changes in demographics, and evolving consumer/supplier characteristics and needs, on the ongoing effectiveness of the Ministry's current information-delivery strategies
• take a systematic approach to the identification, development and maintenance of key stakeholder relationships
• have greater input into the discussions between MED (led by Regulatory and Competition Policy Branch) and the Commerce Commission on accountability and monitoring issues
• move quickly to address succession planning issues, particularly those in the Trade Measurement area where potential loss of staff skills and expertise threatens the viability of the New Zealand trade measurement infrastructure.

We believe that if the issues discussed in this report and the recommendations in section 9 of this report are addressed then the Ministry will remain a relevant and dynamic organisation in the foreseeable future.

Previous Page / Table of Contents / Next Page