For health reasons, government inspectors closed down restaurants and food outlets, including some international and local restaurant chains last week. Immediately, even though the official press did not mention the names of the stores, they and descriptions of the offences appeared in blogs and several sources.
Names were leaked, everyone in Jordan came to know who they were; disgust and anger were abundant at the infringements. Hours later, fines were paid to the government, and the stores were back in business. The owners downplayed the offences and some consumers returned, albeit with trepidation, to the stores.
The incident highlights several deficiencies in our consumer protection legislation, among which one is paramount: Jordan does not have a consumer protection law.
Let’s first pose a nagging question: How come the inspectors only found such infringements with such zeal this month? What were they doing the rest of the year?
It is as if they woke up one day and became suddenly proficient at finding such offences.
It is true that the bureaucracy in Jordan is used to behaving in short and sudden flashes of zealous pursuit every now and then and that the government cannot keep the momentum all year round. Examples include: seatbelts (lasted for two months, then enforcement stopped), talking on cellular phones while driving (one month), smoking ban in restaurants (a couple of weeks), treatment of orphans at care centres (incidents are many), etc.
The answer must be that operating efficiently consistently seems to be too tiring for our oversized government. Therefore, for consistently safeguarding the health and welfare of consumers, Jordan must not rely on inspectors alone.
The issue of cheating, which arises from information asymmetry between the buyer and the seller, is a global problem that is dealt with fully in the economic literature. The consumer pays the price for goods or services, expecting a certain quality and satisfaction. The seller, relying on the fact that the consumer does not fully know the quality of the ingredients or is not an expert on the product, tends to cheat the buyer. Thus, the information asymmetry works to the advantage of the seller in Jordan, particularly in the food industry and any other experiential product or service — the effect is only known after consumption.
To counter cheating in the exchange process, Jordan relies on inspectors, and uses many of them. Inspectors wield significant discretionary powers. Their reports can be damaging to the reputations of the vendors they inspect and come at no cost to the inspectors who, for the most part, are underpaid and oftentimes perform a thankless job, usually at the bottom of the bureaucratic pyramid.
Their incomes may not have risen commensurate with inflation, and even though their numbers are big, they cannot catch all cheats because the latter far outnumber them. Hence, there is no true and objective measure of their performance. Therefore, the inspectors usually catch some; those who are caught may attempt to bribe them to avoid paying fines or suffer business closure, which makes for a perfect case of a moral hazard, where there is incentive to cheat and a motivation to bribe.
Assuming that all inspectors are beyond corruption, which could be the case, but based on international observations is hardly unlikely, the solution in Jordan for the information asymmetry is inefficient: there can never be enough inspectors and there is the likelihood of a moral hazard.
The current situation requires the application of international best practices.
In the developed countries (and many of the developing ones), governments adopt and implement legislation that protects consumer rights. If a consumer is unjustly treated — cheating, quality or contractual failure — he/she can sue the seller and receive compensation.
Jordan has neither a consumer protection law nor the means to compensate the consumer. All that can be done by the consumer in Jordan is to bad-mouth the vendor and eventually, with everyone becoming aware of the malpractice, the vendor may lose his livelihood as customers turn away from them.
Yet, word of mouth is subdued as regular media outlets, in fear of lawsuits, avoids naming such vendors. The vendors, as witnessed in Jordan last week, go back to conducting their affairs hours after paying the fines. And while the government has a fiduciary interest in finding offenders and fining them, the loser is the consumer and the quality of service and industrial production across all sectors in Jordan.
The problem, once couched in terms of quality and competitiveness, makes the government (although the short-term winner) a loser as well, as it has to contend with a smaller economy and lower revenues.
The only beneficiary last week was obviously the government. It collected some handsome fines and its inspectors gained national prestige and recognition for their good deeds. But can anyone be sure that the foul practice of disrespect for hygiene and using expired foodstuff will never be reverted to and remain for another 11 months undetected?
I am not sure.
On the other hand, with a properly drafted and implemented consumer protection law that empowers the consumer, every Jordanian vendor will find himself forced to purchase a third-party insurance policy. He will pay insurance fees, be subject to inspection by the insurance company’s representatives and if found negligent, his insurance rates may increase or the insurance may be refused outright, thus, leaving the vendor helpless in case of a lawsuit.
Jordan can easily pass such legislation which makes the inspection cost fall on the business providers. The insurance cost, being part of the cost of doing business, is usually kept low if the vendor abides by health and safety rules, and he can thus compete and survive. Business performance will thus witness improved quality and competitiveness as it rises to international standards.
Of course, the government legions of inspectors can be downsized and the budget deficit would be reduced. Insurance companies, currently hurting, would love the new revenue stream. But best of all, the Jordanian consumers would be better protected.