Limits of federal regulation: Will government ever have enough money and personnel to regulate every food, toy, appliance, financial instrument, etc.?

There are constant demands on government for more regulation to insure the safety of food, toys, and many other products. Should the government certify which foods are organic and natural? Should the government certify that toys or baby bottles are safe for use? Should the government certify the quality of financial instruments to protect investors?

The financial and bureaucratic limits on the government’s capacity to regulate everything for safety and consumer protection should be apparent to everyone. But what’s the alternative?

This is a question considered by Timothy D. Lytton, Distinguished Professor of Law at Albany Law School, in a forthcoming book, to be published by Harvard University Press, examining how kosher foods are reliably certified through non-governmental private certifying authorities. Professor Lytton visited Temple Law School this week and discussed his thesis which is that there can be reliable alternatives to governmental regulation of consumer standards in commercial products.

In the case of kosher foods, this is done through competing private parties who are in contact with each other to discuss standards and, if necessary, complain about certifications they believe are made in error. The process insures that there are few such complaints, and results in a certification process on which consumers can rely. The consumers most concerned about proper certification are the ones who pay for the process through their purchases.

Another example would be the safety certification of electrical appliances by the privately owned Underwriters Laboratory, which was created at the demand of insurance companies seeking to reduce their liabilities.

The most common objection to the notion of private certification of consumer standards is the abject failure of the bond rating agencies, Moody’s, Standard & Poor’s, and Fitch, to properly rate the quality of subprime and other home mortgage indebtedness, which resulted in the financial bubble and collapse from which we continue to suffer. But Professor Lytton says that the failure in this case is inability to far to find a way for the ultimate consumers of the financial instruments to pay for the certification. This private regulatory failure is due to the conflict of interest inherent in having the sellers of the product pay for and therefore influence the quality of the supposedly independent certification.

On the basis of his presentation, I am looking forward to reading Professor Lytton’s book tentatively titled CAN YOU BELIEVE IT’S KOSHER? TRUST, REPUTATION, AND NON-GOVERNMENTAL REGULATION IN THE AGE OF INDUSTRIAL FOOD.

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