Last year, congress passed a law that requires every product made for children 12 and under must be free of lead and certain chemical compounds. This, in itself is a good idea. However, it completely destroys the economic model the US is trying so desperate to keep in play by bailing out big-name companies: the “free-market.”
Costs
The law requires every product, not just a random sampling but all, to be tested. The price to test a cloth diaper, for instance, runs at $400 each. If the requirement was simply one out of a hundred, it means a differential of only $4 per diaper, something that most companies could afford. For many smaller manufacturers and individual homemade crafters, this could mean the end of their business. This also means that many secondhand stores, such as Goodwill and other thrift shops, will be unable to accept clothing and toys without the new label.
The Freedom-Eating Market
Ironically, this comes at a time when the US government is throwing millions (or is it billions?) of dollars at financial and automotive industries so that they don’t close their doors. The hypocrisy here is that it is fine for small toymakers to close shop and be replaced by larger ones who can absorb the third-party testing of products, but it is not acceptable for large corporations to close shop and be replaced by any other business large or small. Had each of these issues been left to the “free market,” both would have been resolved without the need for regulations.
For the toys and other childrens’ products, how many adults knowingly and willingly let their children play with products that are harmful? Look at the many recalls Thomas the Tank Engine toys had over the last two years and the effect the recalls have had on the business. One article on NPR (link) ends with a marketing researcher implying that companies who try to hide these issues end badly. For the large corporations, a truly free market would have seen some close, some merge, and new ones arise without much problem. Sure, there would have been a major recession (like there isn’t one now?), but it would have costed the government and the people much less. Recessions cannot be stopped when they are already immanent; they possibly could be averted before they are noticed, but that is the kind of far-sightedness governments lack.
Brilliant article Chris! I love the contrast between the auto versus toy industry.
Was the $400 per diaper thing a typo? If it was costing the industry $400 per diaper for regulatory testing, there would be no diapers on the market anymore since they sell for about $15/bag.
Ike, no. That is the cost to test a cloth diaper according to at least two separate articles….some things cost even more.
Was the $400 per diaper thing a typo? If it was costing the industry $400 per diaper for regulatory testing, there would be no diapers on the market anymore since they sell for about $15/bag.
Sorry for the duplicate post. If this is a legally required test and every diaper must be tested and the test costs the manufacturer $400/diaper, then how is it that diapers are still being sold? They cannot operate at a loss. Would you be willing to cite your articles?
Thanks,
Ike.
Ike, this is a brand new law that is just going into effect, so until this last week the extra tests were not required.
As for the citation, the article cchrisr linked to has the quote.
But cchrisr, I read the article and it’s not saying what you’re saying. You said “The law requires every product, not just a random sampling but all, to be tested.” But that’s not true. The law requires each model of toy to be tested, not each individual toy. I can’t find any sources that claim each individual toy must be tested.
It’s still way too much money for small toy-makers to afford, but it’s a far cry from a $400 diaper.
Thanks Jew. That was the clarification I was looking for.
-Ike.
But don’t forget that this is small businesses where the capital gains are already low. From the same article:
Close to a year of annual profit for any business means it’s time to close shop because of these requirements.
Also, from the actual act:
It’s not specific here if it is each model or every single product.
However, regardless of this, it still shows that the government’s regulation of the market has reached a point of restricting market growth to a status quo of the past.