The role of the FTC

THE EDITOR, Sir:

I WOULD like to respond in the public interest to a letter, which appeared in your publication of Wednesday May 9, 2001 written by Dr. Ikhalfani Solan of the Department of Mathematics, University of the West Indies. This letter was captioned FTC needs business acumen.

Dr. Solan accuses the Fair Trading Commission of being misguided, of playing the role of Santa Claus, "coming out once a year to give the gift of protection to consumers from misprinted advertisement." He argues that consumers should be protected, but asks the question "but by whom?" He goes on to suggest that the Commission and the enactors of the Fair Trading Act (which properly is the Fair Competition Act) suffer from "simplicity of mind".

Dr. Solan clearly is uninformed of the purpose of the Fair Competition Act and the creature which it gives rise to, the Fair Trading Commission (FTC). Once Jamaica took the decision to rely on the free market as the primary instrument for allocating scarce resources and therefore as the main instrument for economic development it became necessary to put in place the institutional infrastructure to ensure that this system works as it is intended, thus delivering the desired benefits. A free market does not mean a free for all.

The objective is that the social welfare should be maximised. Included in the social welfare function are the interests of consumers and producers. It is not uncommon in the economic literature to give consumers a higher weight than producers. Since a market consists of both buyers and sellers, the interests of both are interconnected.

The FTC is not primarily a consumer protection agency, although it might appear that way to many onlookers. While a significant amount of the Commission's work has to do with misleading advertisement, this is primarily a competition matter, not a consumer matter.

One common reason why markets are oftentimes inefficient is the absence of accurate information. Advertisements are the main instruments used to inform players in the market. Misleading and/or inaccurate advertisements therefore distort the market and create inefficiencies which may lead to a misallocation of resources and a sub-optimal level of social welfare.

Dr. Solan points to the recent debate in the Senate about "reasonable amount of goods prior to an advertisement of sale" and asks how does this protect the consumer. This is not meant primarily to protect the consumer but rather to prevent businesses from engaging in deceit as a part of their business strategies. The lure of cheaper prices in one establishment over another will divert potential customers away from the business that appears to have higher prices to the one that promises lower prices. When transportation and search costs are considered consumers may end up making purchasing decisions that they otherwise would not if they had had accurate information at the start of the process.

Dr. Solan raised the question of what is a reasonable amount. Is a man who is 6ft. 2in. tall or short? The answer to this question clearly depends on the reference set. A person 6ft. 2in. who plays professional basketball would be considered short, whereas a gymnast of this height would be considered tall. The interpretation of 'reasonable amount' must therefore be taken in context.

It is difficult to write laws for every eventuality. This is why we need arbitrators to decided on a case-by-case basis whether or not the intent of the society is being adhered to. Furthermore the law is replete with references to reasonableness; it is not an alien concept.

Dr. Solan asked the questions why is it necessary for the Commission to be headed by lawyers, and whether most lawyers understand the complexities of the business and economic environment that the Commission regulates. The answer to the first question is that there is no stipulation that the FTC be headed by a lawyer. The answer to the second question is no; most lawyers do not understand the complexities of business and economic environment, in the same way that most economists do not understand the subtleties of the law.

The post of executive director is not restricted to a lawyer or an economist; the Commissioners have chosen (for reasons which I do not care to discuss here) to have lawyers at the helm during these formative years of the FTC.

There is no commitment to having a lawyer at the helm always. There is no reason to believe, as Dr. Solan seems to be suggesting, that a successful businessperson would make a successful regulator.

Concerning Dr. Solan's suggestion that the job description of the FTC should concentrate on Cable and Wireless, Digicel, Carib Cement and Mainland, I would like to inform the public that the FTC has from time to time been involved with cases in the sectors mentioned. The public will recall that it was the FTC that successfully challenged the policy of the telephone company which prohibited the connection of all equipment not provided by that company to the phone lines. This made it possible for individuals to connect their own answering machines, fax machines and computers to the telephone system. On the surface this may appear to be aimed simply at consumer satisfaction, but what this did was to open up many markets to other businesses.

I am etc.,

PETER-JOHN GORDON

Commissioner,

Fair Trading Commission

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