The Consumer Protection Bill has brought into fore the confluence of politics and economics.

In moving the Bill, Gem MP Jakoyo Midiwo has pitted himself against the invisible hand of the market.

The Bill comes at a time Treasury is planning to slap VAT on some otherwise zero-rated essentials.

But is removal of VAT on essential goods part of consumer protection? Hardnosed economists note that taxing items with low elasticity of demand like food is a sure way of raising government revenues.

Midiwo feels that the consumer has not been protected and is left at the mercy of the market. He is right; the government comes in where markets fail.  He gave several examples of market failures supported by several MPs.

Picking out interest rates, he argued that the government channels money to the poor through these banks, but they charge interests rates way above the prescribed 8 per cent.

Midiwo sees amendment of the Finance Bill as the remedy to this problem. His thinking is that if we capped interest rates in government-controlled banks, other banks will follow.

His reference to foreign banks is interesting, calling them exploiters, yet we license them and buy their shares. His connection to hoi polloi through underweight meat, high matatu fares will resonate very well in penultimate year to polls.

The MP also alludes to misrepresentation of information popular in adverts and contracts.

Deceptive trade

Turkana Central MP Ekwe Ethuro says this bill seeks to inspire confidence in our own country.

“With this law, we will stabilise prices and ensure that consumers get value for their money,” Ethuro, also an Agro-Economist, says. But is this argument true?
Of course consumers need protection. The US consumer protection act of 1997 for instance protects consumers with respect to among others; reservation of consumer choice and a competitive market; price and adequacy of supply of goods and services; prevention of unfair or deceptive trade practices among others.

In Kenya, such a law is long overdue. What of establishing a consumer protection agency?

But what does economics say about protecting consumers. There is a myth that the market is efficient. We have seen governments world over intervene in markets when they are not efficient enough. The big question is usually how.

Economists are usually worried that attempts to protect the consumers are usually laced with self-interests. For example, if KCB and other banks were to cap rates to 8 per cent, what would stop well-connected individuals from accessing that money?

One popular method of protecting the consumer is to ensure there is competition. This is better approach than capping prices.

Competition forces producers to offer the most attractive arrays of price and quality options in response to consumer demand. When consumers dislike the offerings of one seller, they can turn to others.

If we had more banks, they would compete for our money by lowering the interest rates.

They would want to make more money by lowering interest rates. Currently, five banks control 70 per cent of the market, which makes competition low.

Consumer protection

Why did interest rates fall after Kanu left power? That tells us that if we put our politics in order, interests would fall because of perceived lower risks.

What of other areas far removed from government like matatus and butcheries? Consumers must be empowered; they are too used to being exploited.

If a matatu raised fare to Sh100 and all passengers walked out, the fare would go down. But in Kenya, at Sh100, customers still scramble! If they do not go home early, thugs will be very happy to relieve them off their wares.

My major concern is how to enforce the consumer protection law. More competition would be a far better remedy. I understand Midiwo’s frustration because the current political-economic situation does not allow enough competition.
Despite economic liberalisation, there is a lot of concentration in lots of industries. A few hospitals dominate high-end healthcare. The same applies to beer, toothpaste, mobile phones, and so on. Without choice, consumer exploitation will persist or even get worse.

In the long run, Midiwo is unlikely to win against the market, which keeps evolving with its collective wisdom.

While law to protect consumers is needed, it is more likely to succeed if anchored on economics rather than politics. If we grew our economy and we became more affluent, consumers would be more informed, confident and less likely to be exploited.

Midiwo might also take solace in the fact that while the market is the invisible hand, government should be the visible hand.

Finally, some could see this debate as a class war pitting the affluent who own the means of production and money against the hoi polloi. The previous statement cannot be 100 per cent wrong.
(XN Iraki)