Consumer Sovereignty versus Consumer Protection in Transition Countries

Abstract

Conventional economics assumes the existence of important limits to the operation of markets. Even economists who generally prefer the market system to solve economic problems point to the significance of market failure - for example asymmetric information. Then these economists demand government policies suspending or modifying the operation of the market, e.g. consumer protection (Kirzner, 1994, p. 101). Our thesis in this paper is that there exists no market failure because a failure can only be defined in relation to the “nirvana-approach” of static Pareto-optimum (Demsetz, 1969, p. 1). In contrast competition on markets must be seen as discovery procedure, which helps to find better solutions (Hayek, 1969, p. 249–265). A static optimum never and nowhere exists - only in the neo-classical theory. Therefore economically justified government interventions into the market process will be called into question by the following argumentation. Only policies, which are supporting market operation, will be advocated. Contrary, we will show that there exists a danger in state interventions to protect consumers. A growing state activity may lead to destruction of producer freedom and consumers' sovereignty and at last of the market economy itself. As example we will analyse consumer protection policy in Estonia.