Unhappy holidays for American toymakers?

by SSFC on December 19, 2008

The Consumer Product Safety Act of 2008, sponsored by Illinois Congressman Bobby Rush and quickly signed into law by President Bush, soon goes into effect.  Sold as a measure to protect children from the perils of Chinese and other foreign-made toys which may contain lead paint, the law was written with good intentions. Unfortunately, good intentions sometimes produce bad consequences.  While this law may never save a child, it will certainly have consequences for small businesses which produce toys, as well as other products intended primarily for children under 12.

As always, the devil is in the details, and Publius Endures has given the details careful scrutiny.  Among other little details, this law may require toy manufacturers and importers to perform costly outside testing, at a cost of over $4000, on each lot of toys shipped.  If the law is so interpreted by the people who draft its enabling regulations, that will simply put small manufacturers out of business, leaving the American toy market to giants such as Mattel or driving more of the business to overseas competitors who produce on a larger scale and can absorb the cost.  The result, probably not intended at all by lawmakers, may be monopoly or oligopoly in the American toy market, accomplished through regulation rather than market forces.

For more on this example of unintended consequences of hasty lawmaking in response to a panic, see Upturned Earth, which suggests that congress or regulators might be persuaded to amend or sensibly interpret the law, if only they understood what a potential monster they’ve created.

{ 3 trackbacks }

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{ 4 comments }

1 Reformed Republican 12.19.08 at 11:20 am

I would like to see someone follow the money. Show me that Hasbro, Mattel, and the like did not have a heavy influence on this law, and I will believe that it is an unintended consequence. I am more inclined to believe it is not a bug, it is a feature.

2 Mark 12.19.08 at 12:04 pm

1. SSFC – Congrats on your new (if temporary) gig here- it’s well-deserved!
2. A slight correction – the testing fees will range anywhere from as little as a few hundred dollars to tens of thousands of dollars, depending on the complexity of the product. In the Culture11 piece, I point to the example of a toy telescope that will cost $24,000 to test and which will thus have to be discontinued.
3. @ReformedRepublican: As I discuss in the Culture11 piece, the evidence shows that Hasbro, Mattel, et al lobbied quite heavily for this legislation with only slight modifications, and actively testified in favor of the testing requirement. However, there is some evidence that they are now fighting for regulations that would effectively negate a lot of the worst elements of the law. My research suggests (though it does not confirm) that the reason they supported the legislation was most likely a public relations decision. In essence, they only fought the legislation to the extent it would have been absolutely fatal to their business models. It was probably not an issue of actively trying to use the law to kill small businesses, though – as I said, they now seem to be backing regulatory changes that will negate the worst effects on small business. More likely, they simply had no incentive to spend political capital fighting against provisions to which they can adjust relatively easily (but which require near-impossible adjustments by small and medium-sized businesses). Now that the election is over and the import scandal has faded from memory, the PR winds have shifted a bit. Still, the more salient point is that regulations, in the long run, serve to prop up bigger businesses by destroying potential competitors.

3 Michelle 01.14.09 at 2:07 pm

Hasbro and Matel are not in competition with small toy companies, not even close – all small toy co. sales combined are not even a pin prick to Hasbro and Matel. They are in competition with each other, ipods and video games.

4 SSFC 01.14.09 at 2:21 pm

You seem to know an awful lot about Hasbro and Metel Michelle. Do you work in the industry?

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