Evaluation of the Contributions Program for Non-Profit Consumer and Voluntary Organizations

3. Relevance

A. Introduction

This chapter explores whether the Contributions Program is still relevant. Key issues investigated through a review of the economics literature and other documents as well as through key informant interviews are:

• Program rationale and the continuing need for the Program.
• Potential duplication through alternative federal programs of support addressing this need.
• Based on evidence of duplication or the lack of duplication, the potential need to encourage complementarity or avoid gaps in support.

B. Objective-Based Rationale

Government policy requires that Canadians be provided an opportunity to participate in developing or modifying policies, regulations and regulatory programs. Canada has adopted a United Nations' Guidelines for Consumer Protection supporting a consumer voice in making and executing government policy.

The Contributions Program is intended to create a more effective consumer voice and thereby encourage a fair, efficient and competitive marketplace. As the Program's Applicant's Guide 2005-06 suggests, the Program provides:

This section explores whether the objective of the Contributions Program is still relevant.

1. Overview

Consumers of goods and services are important participants in the marketplace. However, they may be at a disadvantage relative to other market participants. These disadvantages may lead to inefficiencies and even market failures that penalize both consumers and industry and consequently society as a whole. The classic example is inequality in the information available to consumers and industry resulting in a less than optimal result in the market.¹ One solution to such problems is a stronger consumer voice providing information to the benefit of consumers and ultimately the market.²

Under-provision of information in the market place may be overcome by providing support to an intermediary (the non-profit consumer or voluntary organization) who will act in the interest of consumers to gather and provide the information. The Contributions Program supports the gathering and dissemination of information through its Research Project Contributions.

However, much information has no intrinsic value in itself. The value of information is derived by its use in some purpose or activity that results in a benefit. Value increases as uses of the information increase, suggesting that dissemination of information should not be restricted. However, because of the market failures noted earlier and because dissemination has cost, support may be needed to get the information to those who can benefit from it. Support is available under Research Project Contributions to overcome this form of market failure by encouraging the dissemination of information. Generally this information is provided at zero or low cost to maximize the benefit (widest possible dissemination).

In a more typical enterprise, the sale of their product or service provides some contribution to cover the overheads and therefore sustain the business. However, given the difficulties in charging full value for the information of the intermediary (the nonprofit consumer or voluntary organization) and the rationale not to limit dissemination, information is typically provided at a zero or low price. There is little or no contribution available from this dissemination to support the overheads and thereby sustain the intermediary. To the extent that information provision is a key activity for non-profit consumer or voluntary organizations, their financial position and security will remain fragile.

Development Project Contributions provide support for activities to help the non-profit consumer or voluntary organization become more self-supporting. An example is the development of a product that will bring a positive return to the organization while not suffering the same saleability problem as information.

2. Evidence from the Literature Review

The underlying rationale for support to non-profit consumer or voluntary organizations to overcome information difficulties is well supported in the economics and consumer policy literature.

Information is a key element of the consumer problem. Well-informed consumers will fare better in market transactions. However, information has classic properties of public goods. In the economics literature, public goods are characterized by high costs of exclusion and are non-rival in nature. High exclusion costs are generally associated with the existence of free riders — consumers can benefit from the information without paying for it. The non-rival element of information (use of information by one consumer does not lessen the value of its use to other consumers) means that once produced, it should be used widely to maximize the benefits from it. However, since the production of information and the dissemination of information are both costly, markets will generally fail to produce and disseminate enough information.

Much information is produced and is available that is related to the decisions of consumers. However, the public goods literature notes that even when information is produced, markets will still under-allocate resources to the analysis and interpretation of the information or to the value added of the information. This may be particularly the case for the types of information that are most valuable to consumers. Information is a public good that is likely to be under-provided and as the Consumer Trends Report notes, the information requirements of consumers, if they are to be adequately informed, are likely growing.

In their review of consumer protection policy that focuses on information issues, Hadfield, Howse and Trebilcock (HHT, 1996) provide an overview of the range of consumer policy issues. This wide-ranging study considers changes in the environment facing consumers and interprets these changes in the light of new economic perspectives on consumer issues.

As the study notes, in spite of many important changes in the consumer environment and in how economists view the operation of consumer markets, information remains the driving force in providing the rationale for consumer protection policy. More specifically, the literature now focuses on information asymmetry. This refers to a situation in which producers and sellers have more information than consumers.

The Contributions Program relates to the rationale for information provision in two ways. Research projects are intended to generate information that is directly relevant to consumers as they operate in the marketplace. Information is likely to be under-produced because of its public goods characteristics. Problems with exclusion imply the existence of free riders. In addition, the nature of transactions in information is difficult for both buyers and sellers. Potential buyers have difficulties in determining their willingness to pay for information with unknown characteristics. Sellers find it difficult to provide such pre-sale knowledge to buyers without fully revealing the information prior to payment. For this reason, many potentially valuable market transactions in information do not occur.

Related to the provision of information through research are the organizational challenges that voluntary consumer groups face. As Olson in The Logic of Collective Action (1965) points out, large and diffuse groups like consumers face serious free rider problems in mobilizing support. This is in contrast with producer organizations that have smaller numbers and more obvious and substantial financial interest. Development projects that help organizations with long range plans for generating revenues are a response to this type of market failure.

Continuing research can be a key element in identifying marketplace problems facing consumers. The economics literature, however, focuses on the problems that arise and much less on the specifics of how such problems are best dealt with. Is information to consumers best provided through government directly or through support to consumer organizations? The literature that identifies under-provision does not provide an answer to this question of how best to remedy under-provision. Although there is no specific policy answer here, there may be grounds for believing that a de-centralized and diverse set of organizations that are closer to consumers may have an advantage in dealing with these issues. This provides the core rationale for contributions to a variety of consumer organizations.

3. Evidence from Key Informants

Consensus existed among key informants regarding the strong rationale for support to non-profit consumer or voluntary organizations to achieve an effective consumer voice and through it a fair, efficient and competitive marketplace.

Some key informants identified the "information as a public good argument" found in the literature as the main reason supporting this rationale. In brief, organizations should be provided funding to overcome information problems that adversely affect the marketplace. About as many others saw the rationale from a public policy perspective suggesting a need for a countervailing force to stand up to a strong industry lobby. According to their view, government needed to hear both arguments before it made a decision. In support of their argument, they noted that industry is organized and had money to buy research supporting its view. In comparison, consumers are weaker and less organized. To be given equal weight in government's decision-making, consumers need a research-supported argument to counter industry's argument. The Research Project Contributions provide the funds to support this research-based argument. Further key informants holding this view suggested it was important for the social democratic process that a strong consumer movement should make the counter-argument to the position by industry. Some form of assistance, such as Development Project Contributions, was needed to overcome the current weakness of the consumer movement in Canada and to allow consumer groups to participate effectively in the process.

4. Findings on Rationale

All data sources confirm that the objectives of the Program remain relevant. Achieving a fair, efficient and competitive marketplace through the actions of an effective consumer voice remains an important objective.

Such actions typically include gathering, analysing and disseminating value-added information. This information helps resolve market failures which otherwise would prevent marketplaces from operating or operating effectively. These actions need to be supported because they too are the subjects of market failures. Government helps achieve a fair, efficient and competitive marketplace by supporting these actions and the groups who provide them.

C. Continued Need

This section explores the continued need for the Program.

Key informants felt that while a fair, efficient and competitive marketplace was still a relevant goal it may be harder to achieve it now compared to an earlier time. This is because of the increased complexity, pace of change, and new advances in technology that may place the consumer at an increasing disadvantage in terms of staying current, knowledgeable and protected. Although difficult for the average consumer to stay informed, some groups of consumers (the elderly, lower income groups) may be increasingly marginalized by these changes.

The literature review supports this general view. Consumer choices have expanded. Together with this generally positive development, comes a requirement for information related to this expanded choice set. Globalization increases the availability of products and services and may often lead to the provision of more information. However, consumer evaluation of information, much of which is provided by suppliers, may become more problematic. This expanding choice set and the increasing information processing requirements around it suggest, at least, a continuing need for the Program.

Some key informants suggested that issues have expanded greatly since the 1980s while the Program has shrunk in real terms. In the 1980s the Department of Consumer and Corporate Affairs supported non-profit consumer and volunteer organizations through core funding (not tied to a specific output) and research support. The real dollar amount of support was higher. At the same time the issues were fewer and less complex. As a result, they suggest that while needs are expanding the ability to deal with those needs has contracted. According to this view, if the consumer movement is a prerequisite in a fair, efficient and competitive marketplace then the Program may not be keeping pace with these objectives.

In terms of the objective to create an effective consumer voice, a few representatives of eligible organizations felt that the reliance on Research Project Contributions to pay for overheads of organizations was in fact hurting the consumer movement in general. Some organizations were increasingly driven by a requirement to conduct research to survive. Failure to be successful on the requisite number of applications in a given year could spell disaster for the organizations. Contributions to overheads on research projects were also so slim that there was never enough organizational capacity left to develop new initiatives to allow them to break their dependence on research support.

Also as the only source of overhead support, the Research Project contributions had, in the view of a few key informants, resulted in consumer organizations being transformed into research organizations. Although this satisfied a need for informed consumer input by the government, the resulting heavy research orientation by consumer groups was, in the opinion of the few, not in the best interest of the consumer movement.

Poor financial health and lack of sustainability of non-profit consumer and volunteer organizations was a general view held by all key informants. Some suggested that organizations had become less viable in recent years. To the extent that an effective consumer voice requires such organizations and given that the Contributions Program is one of the only programs of support for such organizations (see next section) there continues to be a need for the support provided by the Program.

From the literature review (HHT, 1996), there is the suggestion that organizing consumers may be more difficult now than in earlier time periods. Although no trend data exist on which to base firm conclusions, the HHT assertion that "consumer activism seems curiously in abeyance" appears accurate. In part, this may reflect a view that government is providing consumer protection policies. But whatever the cause, most consumer organizations appear to face substantial organizational and development barriers. This too points to a continued need for the Program.

Both the literature review and interviews suggests that there is a continued need for the Program. Evidence suggests that the need is expanding and there is some evidence that the Program is not keeping pace. This expanding need is in part due to an increasingly complex marketplace and perhaps a greater information-processing requirement for consumers to remain effective in the marketplace.

D. Possible Duplication

This section explores whether the continued need for the Program is being met through some other initiative or initiatives.

The consensus across all groups is that there is little or no support available from federal departments for general consumer research of the type funded by the Contributions Program. A few identified a new program started by the Privacy Commissioner, apparently modeled on the Contributions Program, but covering a much narrower set of research topics. Other funds may sometimes be available for very specific issues but these are project-related and not part of a general program of research support. Organizations supported by the Contributions Program rarely are able to access these project-specific funds.

Support is sometimes available through Federal Departments related to consultation with consumer organizations. However it appears to be infrequent and generally limited to out-of-pocket expenses.

Some organizations may get time and expenses paid if they are given intervenor status, for example in a rate hearing. This happens infrequently for the organizations covered in our interviews.

Although no longer available, there was a Voluntary Sector Initiative (VSI) that provided support similar to Development Project Contributions. Only a few organizations had been able to make use of the VSI. The few other organizations that were aware of VSI had not received support through it.

Organizations in Quebec are able to access operating grants through the Secrétariat à l'action communautaire autonome du Québec. About 40 organizations share in approximately $800,000 available under the program annually. We did not find any evidence of similar programs operating in other jurisdictions. Some provincial/territorial ministries may fund individual research projects by organizations but these are few in number and value.

Support to university researchers to conduct consumer-related research is possible through the Social Sciences and Humanities Research Council (SSHRC). However a partial review of grants made through SSHRC did not identify any research grants that would be similar to the projects funded by the Contributions Program.

The Community-University Research Alliances (CURA) program of SSHRC was identified as possibly promoting similar research to the Contributions Program. CURA promotes research and social innovation by funding vital, creative partnerships between universities and communities. It helps universities and their local partners to work together for the social, cultural and economic development of communities. Potentially this program might better fit with Quebec-based organizations given their community focus. However, there appears a limited potential for overlap between CURA and the Contributions Program.

As a result, there appear few if any Federal programs that overlap with the Contributions Program. Some funds may be available through individual research projects by Federal departments or through Provinces and Territories. However these are infrequent and not part of a formal and continuing program of support. The only significant program of support, but not directed at research, is the operating grants available through the Province of Quebec.

E. Encouraging Complementarity and Avoiding Gaps

In the past, the absence of other Federal programs of support for consumer-related research activities meant that no linkages to avoid duplication were needed. However, staff of the Office of Consumer Affairs consulted with other departments to identify relevant topics for research projects that then became Suggested Priority Areas of the Applicant's Guide. This helped ensure that other department's needs for consumer-related research were being addressed in the absence of other Federal programs of support.

In the future, staff of OCA and the Privacy Commissioner will need to co-ordinate activities to avoid duplication of privacy-related research given the latter group's new program of support.

F. Summary

All data sources confirm that the objectives of the Program remain relevant and there is a continued need for the Program. Evidence suggests that the need is expanding; due to society's increased complexity, pace of change, and new advances in technology; and there is some evidence that the Program is not keeping pace with this need.

There are few if any Federal programs that overlap with the Contributions Program. Some similar research projects might be supported by Federal departments or through Provinces and Territories but these are infrequent, specific to a research topic, and not part of a general program of support. In the absence of similar programs offered by other Departments in the past, staff of the Office of Consumer Affairs consulted with departments to identify relevant topics for research projects. These become Suggested Priority Areas of the Applicant's Guide. In the future, co-ordination between the Contribution Program and a new program by the Privacy Commissioner will be required to avoid duplication related to privacy issues research.

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¹ An example involves buyers and sellers of a good. Sellers have experience with the good; the buyers do not. The sellers are in a much better position to understand the quality of the good compared to the buyers. As a result, sellers will ask a price for the good that is greater than the buyers are willing to offer. The sellers refuse to accept a price lower than would be fair given the quality of the product. The buyers refuse to pay more in the absence of information suggesting the quality of the product is worth a higher price. No agreement can be reached, the good is not exchanged, the market fails and both buyers and sellers are penalized.

Another example of market failure involves a single seller of a product and many potential buyers. The single seller can exploit knowledge of the marketplace to sell only the amount of product that will maximize profit and not the larger amount of product that would maximize the benefit of consumers. In the example, consumers are many, disorganized and each with insufficient market power to affect the outcome. As a result an inefficient market result occurs with fewer needs being met than would be the case in a more competitive market. (Return to reference 1)

² In the first example, testing of the product by an independent group could reveal what the sellers know and what the buyers need to know to settle on a fair price. In the second example, research by a independent group leading to a strong lobby before a regulator of the monopoly might lead to a price for the product which would benefit more buyers while bringing a fair return to the seller.

The solution requires involvement by an intermediary (the non-profit consumer or voluntary organization) because the lack of information is itself a result of a market failure. Consumers collectively benefit from the information when the cost of the information is less than the sum of the benefits consumers derive from it. However if the cost to obtain the information is more than the benefit the information provides to a single individual, there is no incentive for any one consumer to obtain it. A "market" for information is unlikely to form, as the value of the information is hard to prove in advance. As a result, information as a good, suffers the same market failure problems as in the first example. In addition, once information is released it is hard to charge others for the same information because others can "free ride" on the previous purchasers. Again a market for information is unlikely to form necessitating the involvement of an intermediary. (Return to reference 2)