Regulation v Reputation: a reminder that there’s no such thing as a free lunch

The ongoing investigation into the presence of horse meat in processed meat products has caused a number of predictable political and media reactions.  However, I suggest the real problem is the burgeoning tendency of the state to intervene, despite the ever mounting evidence that problems do not disappear they just move around.

The  now standard response to any “crisis” is to call for more regulation:

“MPs demanded the Food Standards Authority (FSA) be given statutory powers to require food producers to undertake testing and that all testing reports be sent to the FSA regardless of whether they mandated them or not.”

as if the problem were one of compliance.  It’s as if it were currently OK to include horse meat in food products.  And creating more regulations achieves nothing at the sharp end:

“Defra gave nearly 80 organisations the authority to produce passports and some of them are little better than children could produce”

From the same article the Environment Secretary reassuringly tells us

“I want to have a proper look at the system and within the constraints of European law I want to make sure that we do reintroduce more targeted testing and more random testing of products.”

In more pressing times there was a simpler solution.  In 1942 if your food products were found to contain horse meat the result was a fine[1]: your food products, your problem.

A brief glance at regulation introduced after a previous horse bolted,  the British Cattle Movement Service, indicates a highly complicated process tracking the animal all the way from birth to butcher.  But it can’t account for negligence, fraud or other criminal activity in the supply chain.

The system was brought in to reassure consumers that the food they were eating was safe. But it’s no more than an intricate form of signalling unless we assume that the default position of the food supply chain is to sell unsafe food.

Importantly, regulation is not a free good. In a presentation to the Centre for Policy Studies Michael Fallon put the extra cost to business imposed by the previous administration at £90 billion (but it’s not possible to point the finger only at one part of the political spectrum).

This burden will eventually affect international competitiveness.  However while regulatory costs have formal incidence on business they have effective incidence on the consumer. The costs are passed on to you and me.  It puts up the price of food and increases cost and so quality pressure on the supply chain.  In the end it might be the cause of the problem not the solution.

Whether regulation is a price worth paying it seems necessary to first ask what does it actually do for the consumer?

A long standing principle of contract law was caveat emptor:

“[it] was the guideline for the courts and the point was that the buyer had the chance to use his knowledge to be careful or accept the cost of his inattention.”

But if the consumer is led to believe that regulation has taken care of everything then do they still consider that their inattention have a cost attached?

One survey shows that a lot of people are calling for more regulation. However it also reports that 12 per cent of British consumers say they will reduce their spending at Tesco.

• Has anyone identified what gap new regulation would fill?

• Of those two statements which one most likely to cause Tesco to up its game?

As one commentator put it, regarding other problems:

“Tesco will not recover until it learns the lesson that it needs to respect its customers. Standards need to be raised. Staff need to be trained better. And quality control needs serious attention.”

The horse meat problem broke for Tesco in mid January.  At the beginning of February they took out full page advertisements in newspapers in an attempt to regain consumer confidence with unequivocal statements statements including:

 “Our frozen burger supplier used meat in our products that did not come from our list of approved suppliers [nor] from the UK or Ireland despite our strict instructions… This supplier will no longer supply any products to any of our stores”

Direct and to heart of the matter.  At the end of February Tesco took out further advertisements with an update including: “We know our supply chain is too complicated… We’re making it simpler… We know that this will only work if we are open about what we do”.

And it’s not only Tesco that want to be open.  Iceland took out full page advertisements in mid February,   in response to a suggestion that it was implicated.

Iceland didn’t refer to how it complied with government regulations, rater is described how it was leading the way on various food issues and benchmarked itself against Marks & Spencer.

But the real problem with regulations is once you’ve got them, cutting them seems to be an endless task and difficult to do.

Related posts:

1. Suicides in Bridgend: Internet Regulation?
2. Free Rice
3. Another day, another food scare
4. Why food and fuel prices are rising
5. Let those who run Acadamies and Free Schools make a profit