Edward Lotterman, the economics columnist for the St. Paul Pioneer Press, had a column in yesterday’s paper on the economics of safety. While his specific example was mine safety, his comments, about why safety regulation is warranted, apply to all workplaces.
Lotterman says:
The arguments against government regulation parallel those by Milton Friedman in arguing that government regulation of food and drug safety makes society worse off. ”
He goes on to say that the underlying assumption for the no-regulation argument is that all parties – employers and employees in mines, in this case – have enough information about all of the costs, and that “no third parties will be harmed..”
But Lotterman points out that that isn’t true here (he calls it a “market failure”). The families of the miners who died are sharing the costs. The community which sends out firefighters and rescue personnel share the cost.
The mining company reportedly didn’t want to shut down production to correct any problems – a market decision. How much production have they lost now, though? How long until they are back to running at the same capacity, with people of the same expertise as those they lost?
Regulations are far from perfect. Given our druthers, we’d prefer to see companies operate safe workplaces because it makes economic and moral sense to do so. The economic value of a safe workplace has been proven, time and again. But, as with this mine, the values aren’t additions to the bottom line, but costs not incurred. Those are harder to measure and easier to ignore. Until such time as the accountants use models to factor in those not-yet-incurred costs, regulations are a necessary substitute.