Children’s products manufacturer Rick Woldenberg on the devastation caused by the implementation of the Consumer Products Safety Improvements Act
HH: For the past eight months, I have been talking a lot about a somewhat obscure law called the Consumer Products Safety Improvements Act, CPSIA, and I’ve done it often, and I’ve treated it as sort of a preview of coming attractions. Now it is a horror story in its own right, but it is also, as I say, a preview of coming attractions, of what happens when Congress wades into complicated areas of the economy. And as we unplug in the next three segments what has happened after the CPSIA passed in 2008, keep in mind it was a relatively simple problem they were attempting to solve in the United States Congress, and the utter mess they have made of it. Now I’ve talked in the past with Walter Olson of Overlawyered, with Gary Wolensky, one of the preeminent practitioners in CPSIA law, with Nancy Nord of the Consumer Products Safety Commission, with John Engler of the National Association of Manufacturers, a lot of good experts. But I’ve never really spent time with the head of a company that is dealing in a large way with this law. And one such person joins me now. Rick Woldenberg is the president and CEO of Learning Resources, Inc. He writes a blog that talks a lot about the CPSIA. He’s from Chicago. Rick Woldenberg, welcome to the program.
RW: Hi, Hugh, thanks for having me on today.
HH: Great to have you on. Let’s start by setting up what Learning Resources is, so that people can figure out your perspective on this law, and the website for it is www.learningresources.com. What’s the company?
RW: Learning Resources is a 25 year old company that makes educational materials for schools and educational toys.
HH: And you’ve got about 2,000 items in your inventory?
HH: And how many people do you employ?
RW: We have about 150.
HH: And over the years, you’re a lawyer by the way, right? You got out of the business of law and you became a manufacturer.
RW: Don’t tell anybody.
HH: I know, we’ve got to keep that deeply hidden. So in terms of the growth curve, you’ve never not been regulated until the last year, but you’ve not been a major part of your life.
RW: Well you know, we’ve always been regulated by safety laws in the United States, and it’s always been a very serious obligation on our part. Remember, I mean, we always are aware every day that kids use our products, and we’re quite concerned to make sure that our products are safe and appropriate. You know, since we and everybody else in this industry is regulated by the CPSC and always has been, at least for the last thirty years, we’ve had contact with them from time to time, certainly been testing products for many, many years, and dealing with all the issues that come out of product safety and product liability. It’s something we’re familiar with.
HH: And for the benefit of the audience that can’t get to the website and go to www.learningresources.com, describe some of your inventory for them.
RW: Well, we make mass manipulatives, so these are products that kids use to learn counting, adding and subtracting, multiplying and fractions. So we would make fraction circles, which are circles cut up into different fractions, obviously, and we make a lot of really childhood items like beads, blocks, puppets and puzzles, we make games, a lot of activity kits. We make many products that teach science like an electricity kit you might use in the school. We have hands-on learning materials to teach reading. We also make electronic learning aids that would be both used in the school and used at home to teach, again, all the basic subjects that kids would use in pre-K and elementary school.
HH: I love the website, by the way. I’m looking at the teaching cash register as we speak, and I think that looks magnificent. And you’re a Twitterer. You’re twitterific. You’re into the new media marketing, so that’s good.
RW: That’s right.
HH: All right, so you’re sitting there making 2,000 different products, doing very well over 25 years. Along comes the Consumer Products Safety Improvements Act of 2008. Explain to the audience what the motivation was, where it came from.
RW: Well, in ’07 and ’08, there was an outbreak of lead in paint recalls. And there also was a child that died in Minnesota from swallowing a bangle that came with a pair of shoes. And the bangle was made out of pure lead. Leaded jewelry is hundreds of years old, and it’s inexpensive. As a consequence of the large amounts of recalls with lead in paint, which came from China, and were largely toys, and that one incident with jewelry, Congress and a variety of media outlets like our hometown Chicago Tribune went wild, and translated a fear of something, something specific, lead in paint and lead jewelry, into essentially a fear of everything. And Congress really threw the book at the entire industry, if you can describe it as an industry, people that make products for children, and that’s really soup to nuts, not just toys, it’s not just jewelry, it’s books, it’s bikes, you name it. If you’ve ever seen a child touch it, it’s included. And so by so broadly defining the products that were subject to this law, and by making the standards so completely absolute, meaning that they no longer took risk or safety into account, they just drew a line and said you’re on one side, you’re okay, and you’re on the other side, you’re not. They swept up dozens of industries that had never been regulated before, and they hit them with very, very stringent requirements that they really couldn’t understand.
HH: And the impact has been what?
RW: Well, the impact has been chaos, loss of hundreds of millions of dollars, literally, from lost inventory, because had retroactive effect, which sort of like the prohibition, where one day alcohol was okay to sell, then the next day you had to pour it down the drain. These laws continue to have rippling effects today. I don’t know if you’re aware of this, Hugh, but earlier this week, the CPSC confirmed what probably everybody knew anyway, but they confirmed absolutely that rhinestones, crystals and glass beads are illegal to sell to children twelve and under, under this law.
HH: Yeah, I covered it on my blog, and I assume that that goes to a lot of fashion, as well as bead kits and jewelry. I assume that lots of little girls’ sequins, and things like that, will be covered, right?
RW: Yes, it’s apparel, so it’s jeans and shirts and so on, it’s footwear, and it’s jewelry. And there’s a lot of it in the economy.
HH: In abundance.
RW: There’s no injuries from these products from lead, but they’re illegal now.
HH: As this has rippled through, I’ve covered especially the Yamaha and the small motorbikes, because it’s so absurd, the American people got it. But it’s largely hidden from the public, isn’t it, Rick Woldenberg? I don’t know that it’s gotten a lot of attention, what’s happened.
RW: Well, it has had sort of a steady background attention in the media, but it certainly hasn’t been a groundswell of focus. It has a lot of attention in the newspaper with Iraq, Afghanistan and health care and so on. And this law is being imposed in a staged manner. And so it’s sort of like, they’re just turning the ratchet just a little bit at a time.
HH: Now you’ve got a big date coming up, August 14th. We’ve got a minute to our first break. Let’s tell people what the latest body blow to the businesses impacted by CPSIA is.
RW: Well, on August 14th is another retroactive lowering for the standards for lead in leaded paint. And there also is the imposition of tracking labels as a requirement on all children’s products, even products that are exempted from the lead standard, all children’s products.
HH: What is the purpose of a tracking label on these things?
RW: The tracking labels are intended to, or they’re proposed to “improve recall effectiveness”, so the notion the Congress was concerned about is that they would go out and try and recall a product, and people wouldn’t find out about it, and so they decided that if they put a label on everything, that would solve the problem.
HH: What’s the cost of that, just to your company, just to Learning Resources? Can you give us a sense of what compliance with this is?
RW: Well, we estimate, because of the size of our product line, and the number of production runs that we do in a year, because we try to keep our inventory down, so we do multiple runs, we estimate that if we have to put lot markings on our products, we’ll be changing 600 labels a week. And based on our historic recall rate, which is .00001%, we would spend on average 50,000 times our average expected recall expense annually to put these labels on.
HH: We’ll come back and explain what that means. But what it means is this is a deeply flawed law, and Congress won’t fix it.
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HH: We’re talking about the Consumer Products Safety Improvements Act, CPSIA, and I call it a preview of coming attractions is the health care bill works, because the unintended consequences of this relatively benign-sounding law have been so devastating, that hundreds, thousands of businesses across the United States have been deeply impacted. Many have been ruined. And Rick Woldenberg, people think I’m alarmist about this, but I just got an e-mail from a Denise Mullison in Hawaii who says her hand-made toy business, a small cottage industry, has been completely shut down, and that, I quote now, “Please know that when Mr. Woldenberg speaks, he not only represents large and mid-sized companies, he speaks for thousands of now struggling cottage industries across the country as well. I don’t think Congress has a clue about this, do they?
RW: Well, they ought to have a clue. They’ve had the information presented to them time and again. And you know, folks like Denise, who is somebody I’ve written about in the past, are really, I think, tragic victims of a really ridiculous law. The worst thing about the law is that under the guise it’s safety, they have taken all concepts of safety out of the law. I know it doesn’t make any sense, but the law has removed from the CPSC the ability to assess risk, so products like Denise’s, that she sells in her store, which have never hurt anybody, become for illegal for reasons that have nothing whatsoever to do with safety. It’s just arbitrary.
HH: Now in terms of the labeling, the tracking label requirement that we talked about during the break, it is effective August 14th. Explain to the audience when you got word on how to implement the requirement.
RW: Two days ago.
HH: See, no one’s going to believe that, because it’s so absurd.
RW: Well, and there’s been a great deal of interaction with the agency about tracking labels. You know, I must say candidly, the agency has been put in a situation where they always look bad on this kind of thing, and I don’t really want to jump on their back for it. Yes, it’s really unfortunate that it took 11 ½ months, but I will say it’s not like the agency had nothing else to do. They were given a lot of simultaneous, impossible requirements to meet. The mistake I believe that the agency has made is not just admitting that it took too long, and then slow the process down to allow for the kind of discussion with industry, and the time for a smooth, reasonable implementation that a process like this would require. The idea that you can put a six page document out three weeks before it’s due, and that that would make everything okay just doesn’t make any sense. It effects 60% of the economy.
HH: And it also comes out at a time when there’s been tremendous turnover at the agency, as is natural with a transition. The new chairman, Inez Tenenbaum, supposed to be very smart, I’ve invited her to be on the program. The old chairman, Nancy Nord, very smart, she’s been on the program, they don’t have a vast staff. They don’t have the kind of lawyer brigades that they need to work through a hundred different stays. But now the National Association of Manufacturers has put a petition in front of them to do what with regards to the labels, Mr. Woldenberg?
RW: Well, they’ve asked for a stay of a year. In other words, they’ve said roll this provision back a year to allow for the kind of interaction and finalization of rules that I’ve just suggested. Actually, in my opinion, they should roll it back for a year from the time the rules are finalized, because if you look at the various industries that are affected by this, there’s very long lead times to manufacturing, particularly in apparel, which I think may have the longest lead times of all. And you just can’t drop this on them three weeks ahead of time. It’s, I mean, the game is over three weeks ahead of time.
HH: So how are people going to, I mean, you’re going to be technically, anyone, not you particularly, but anyone who makes a product that does not now include a tracking label that’s covered by this law, and we’re talking hundreds of thousands of products if not millions of products…
HH: Millions of products, what happens? Are you vulnerable to prosecution?
RW: You betcha. Not only are we vulnerable to prosecution, but we’re vulnerable to prosecution by 51 different agencies, because every state attorney general is empowered to enforce the federal law without consulting the CPSC, even to the extent that they can decide that the law means something different than the CPSC says. So the CPSC has put out guidance, but that guidance isn’t binding on any of those AG’s. There have been specific incidents involving California where California has stated in writing that they disagree with the policy of the CPSC.
HH: We’ve got to go to break. When we come back, we’ll talk about it. I’ve been studying this myself in the perspective of my Con law background, and I do think there’s a preemption argument that has to be made here. But let’s get back to Congress when we come back.
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HH: Rick, in terms of, if Congress does for American health care, with the same precision and grace and specificity as they did for children’s manufacturing, what will be the impact on American medicine?
RW: Well, I hope they don’t do that, that the reality is that the CPSIA had many so-called unintended consequences. They weren’t really, they may have been unintended, but it’s not like they weren’t able to figure out what was going to happen. The fact of the matter is that many, many, many jobs have been lost, and companies have been tremendously weakened for random events, essentially, that have nothing to do with the overall purpose of the law.
HH: Did they see it coming, Rick Woldenberg?
RW: Well, if they didn’t see it coming, it’s because they refused to listen to the people that told them.
HH: Were you involved? You particularly, did you see an opportunity to go in and talk with them when they were formulating the CPSIA? Did anyone reach out to manufacturers and say what do you think about this?
RW: They wouldn’t talk to me, and I know for a fact that they didn’t read my letters, because when I did finally speak to the staffers responsible for this law, not a one of them recognized our logo or my letters. One of them, in fact, asked me to resend all my letters from before the law was put into place so he could read them later.
HH: How about in the aftermath, because now we’re talking about millions of products? By the way, how many jobs do you guess have been lost as a result of this law?
RW: Well, I really do think that thousands of jobs have been lost, or are in the process of being lost. The day of reckoning is really coming, and so those people that haven’t closed up their business or moved onto other things, you know, will have to pay the piper soon. And it’s pointless.
HH: And so has Congress even taken note of this? I talked to Senator DeMint about it, I’ve talked to a number of different Senators about it. But they all pledged to help. The Democrats don’t come, the people like Harry Reid and folks who can move legislation. What’s the response been of the majority party in Congress?
RW: The majority party is by and large not been willing to act. There have been a small number of Democrats that have. You know, there’s good news and bad news. The law passed by an overwhelming majority. Only four members of Congress voted against it last August. Since then, 139 members of Congress have either sponsored bills, there are 11 pending, or voted for legislation sponsored by Senator DeMint in favor or changing this law. So obviously there’s been a lot of progress, but it’s a very small number of Democrats on that list. The most important Democrats, which is the leadership, are nowhere near the list. They have basically refused to hold hearings.
HH: Why the reluctance to try and fix what is obviously a disaster, and one without any upside?
RW: I personally think it’s message control. Back in August of ’08, Congress was heading into a reelection campaign. They were three months away from the polls, and they wanted to look tough on safety. They invented a crisis. The recalls in ’07 and ’08 did not result in injuries, but they were so hysterical about it, they invented a crisis and then they solved it in order to look active. No one wants to touch fixing a law that has the word safety in it, because they don’t want to admit that anything was wrong. The staffers themselves have said they don’t want to reopen the law, because the process used to produce the law was perfect.
HH: But now, then they’re just indifferent to what’s going to happen to the businesses.
RW: I hope they’re not. There are many members of Congress that expressed concern behind closed doors, but my personal opinion, the leadership is going to have to make it okay for them to do something about it. It’s very, very unfortunate that companies like ours and others will be sacrificed because they don’t have the political will to correct a mistake.
HH: Now people like Walter Olson at Overlawyered, myself, John Stossel to a certain extent, we’ve covered this. You’ve got some coverage in the Wall Street Journal. But generally, the mainstream media does not appear to be aware of this, or is profoundly uninterested in it. Why is that, do you think?
RW: It’s hard to understand. I think that it has an air of unreality to it. I mean, how could anyone believe that the U.S. government would outlaw rhinestones on jeans? I mean, it doesn’t make any sense. And when you say it to people, they look at you like something’s wrong with you. It’s just hard for people to get their arms around this could really be happening. But the fact of the matter is that across this country, many, many resale shops, Salvation Army, Goodwill and so on, have discontinued selling children’s merchandise because of this law. So come winter, it’s going to be tough to buy a used children’s coat. And that’s Congress’ fault.
HH: What do you want people who are listening to do, even if they’re not directly impacted?
RW: Well, I want them to demand of their Congressmen and their Senators to support amendment legislation to restore essentially risk assessment to the agency, to fix this bill. We don’t need to throw away all these industries that aren’t harming people. These industries are run by good people who really do care about kids. That’s their life blood. The CPSC is capable of administering safety intelligently if given the authority to exercise judgment. That’s what they should do.
HH: What about the state attorney generals, Rick Woldenberg? Obviously you mentioned Jerry Brown, who I get along with fine. I’ll bring this up next time he’s on the show. My question is have you seen reasonableness as a rule among their offices thus far?
RW: I don’t think that the state attorney generals should have the unfettered right to enforce federal law. I think that the industry requires a single administrator of these rules. We need to know who’s writing the rules. We can’t, small and medium-sized businesses cannot manage 51 conflicting attitudes towards law. It’s too much. We basically throw up our hands. We can’t manage it. One set of rules is tough enough. 51 is impossible.
HH: Last question, and I appreciate so much time, Rick Woldenberg. Did you ever expect you’d be spending this much time as the head of a company on regulatory matters? I know regulatory matters are important, and you’ve got general counsels and stuff for that, but you’re the head of the company.
RW: Not in a million years. But if we can, if I can make a difference, if we can raise these issues to the point where Congress will actually act to correct this mistake, it would be worth it.
HH: All right, the blog is http://learningresourcesinc.blogspot.com, or you can go to www.learningresources.com, and it is linked at Hughhewitt.com. Rick Woldenberg, thanks for continuing the education of my audience on this, and for giving them a little preview of coming attractions, because I continue to say if Congress can get something this relatively simple this badly wrong with these devastating consequences, imagine when they begin to regulate health care.
End of interview.