Consumer Sovereignty

Consumer sovereignty is a fundamental principle used in economics and political science denoting the freedom of the individual to choose how his or her needs and wants are fulfilled. In a sociopolitical perspective, the concept emphasizes the role of the consumer as a market “sovereign” as regards the production of goods and services. In its broadest sense, it refers to the assumed power of consumers in free market economies to decide which goods and services—and in which qualities and quantities—are actually offered. A free market is defined as one where there is no collective control over the production or distribution of goods.

The origin of the concept of consumer sovereignty can be found in the classic liberalism of Adam Smith. In his seminal work The Wealth of Nations (1776), Smith explicitly developed the notion that the needs of the people can be best met in free markets if the supply of goods is steered by demand. The term consumer sovereignty itself was, however, only coined one and a half centuries later. William H. Hutt (“The Concept of Consumers' Sovereignty,” 1940, 66) defined it as “the controlling power exercised by free individuals, in choosing between ends, over the custodians of the community's resources, when the resources by which those ends can be served are scarce.” In economics, it was mainly the Austrian school of Friedrich Wieser, Carl Menger, and Ludwig von Mises that explicitly discussed the concept. In Western consumer culture, the idea became closely connected with freedom of choice and powerful consumers as the rulers of the markets. Ideologically, it supported the rise of a materialistic culture of consumption (Kasser and Kanner 2004).

While the concept today is used in societal discourse and mainstream economics as a descriptive and largely unquestioned assumption, it is also a normative leitbild (i.e., model) for how consumers should behave in market economies to create or maintain fully functioning markets. The sanctioning power of the sovereign consumer lies in his or her purchase power and influence on the reputation of the supplier and its products. In political economy, these two sanction mechanisms of the demand side to force suppliers to correct quality losses have been referred to by Albert Hirschmann as “exit” and “voice.” The consumer has a double role to play: he is both a market actor (e.g., when the consumer switches his energy supplier and herewith “exits” as a customer) and a subpolitical “consumer-citizen” (e.g., when the consumer joins a boycott, complains to an airline, or to the insurance ombudsperson, or actively spreads negative word-of-mouth about a bad service received in a repair shop).

The semantics of sovereignty are rich and purposeful: in a historical-political sense, a sovereign is an absolute ruler, often a king or a prince who only obeys his own rules. In a cognitive-psychological [Page 324]sense, to act in a sovereign manner also connotes to be self-determined and hence independent from any unwanted external influences such as peer group pressure, public opinion and mass media influence, governmental paternalism, or marketing activities. Herewith, the only criteria of consumer choice are the consumers' own (preferences), which the consumer is assumed to know.

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