Dialogue: Product Safety Regulation

Leftist: You Libertarians are blinded by your dogmatic ideology. Surely no sane person could object to government product safety regulations! Without them, we’d be conned into buying putrid meat and toxic house paint!

Brian: Do you trust the government to keep you safe from dangerous products?

Leftist: Sure, for the most part.

Brian: Why do you trust them to do this?

Leftist: Well, they’ve done a pretty good job of it so far! They do make some mistakes sometimes, but no one’s perfect.

Brian: So you trust them because of their pretty good track-record in the past, is that right? You don’t just trust them because they’re the government?

Leftist: I trust them because of their past track-record.

Brian: Ok. Then would you also trust an organization that wasn’t a government to protect you from unsafe products, if that organization had a good reputation and had built up a good track-record of doing so in the past?

Leftist: I guess… But the question seems irrelevant: what organization other than a government could protect me from unsafe products?

Brian: A private organization that evaluated products for safety and then either approved the product or not. You could then choose to only buy products that had received approval from this organization, or a similar one, and you would be protected by them.

Leftist: But how would such an organization fund its activities? And what would ensure that product manufacturers allowed the organization to conduct its evaluation? What if the manufacturer prevented the organization from accessing its facilities? This would prevent a thorough safety evaluation from being done.

Brian: The product manufacturers would invite such organizations to evaluate their products, and would probably even pay the organization to conduct such an evaluation. That’s how such organizations would get both funding and access.

Leftist: What? Why would manufacturers want to do such a thing?

Brian: Because of discerning consumers such as yourself who want to be protected from unsafe products! Manufacturers would know that if they wanted to be able to effectively sell their products to safety-conscious consumers such as yourself, their product would need to be certified by a trusted, reputable product safety auditing firm. Or, it might be large retailers who demanded such a certification because they only wanted to sell safe products in their stores, in order to maintain their good reputation. For instance, even now with the government food inspectors in place, the Loblaw grocery store chain employs private food inspection firms to audit the facilities and practices of food suppliers.

Leftist: Ok, but if the product manufacturers themselves are paying for the safety evaluation, won’t their be pressure put on the safety inspectors to provide a favorable evaluation, even if one is not warranted, in order to satisfy their paying client?

Brian: Perhaps. But if the safety organization wanted to protect its most valuable business asset, it’s good reputation and track-record, than they would almost certainly resist that pressure in the vast majority of cases. Doing so would be in the best interests of their organization.

Leftist: I don’t know… Seems like a situation that would result in a lot of shenanigans.

Brian: Students pay to take university courses, do they not?

Leftist: Um, yeah… How is this relevant?

Brian: Students are also graded in university courses based on the work they do and the tests they write. Can students pay to both take a university course and to guarantee themselves a high mark in that course without doing the course work or writing the tests?

Leftist: Not unless the ‘university’ or the professor are very shady. Although, it is easier to get higher grades at some universities than it is at others.

Brian: And that’s something that an astute ‘consumer’ of the university credential, the potential employer of the graduate, will take into account when evaluating the meaning of that credential and those grades. The same applies to product safety. Some organizations will have higher standards for approval than others, but that’s something that an astute consumer or retailer will be aware of when making their decision. But an organization whose approval was just completely for sale to any company willing to pay the price would be as reputable as the ‘very shady’ university, and its credential would be worth as much in the eyes of the consumers.

Leftist: Ok, I’m beginning to see your point. But it all still seems like an unnecessary risk to me. Why not just stick with the government system, where the inspectors do not receive their funding from the people they are inspecting at all?

Brian: Have you ever heard of something called a ‘revolving door arrangement’?

Leftist: I’ve heard the term, but I’m not sure exactly what it means.

Brian: It refers to the ‘revolving door’ of employment between large companies and the government agencies that regulate them. Large companies like hiring former officials of the relevant regulatory agency so that they can know the ins and outs of and be on the good side of that agency. The regulatory agencies like hiring people from large companies in the industry because of their knowledge of the industry and connections within the industry. Officials in the agency might look forward to holding a lucrative position in that large company in the future, while other officials who used to work for that company might look favorably on their former workplace. Either way, it is likely that such officials will be biased in favor of the large company in question, and this will affect policy-making. Notable revolving door arrangements exist in the US between Goldman Sachs and the Securities Exchange Commission, and between Monsanto and the Food and Drug Administration, among others.  

Leftist: Ah, yes, I am aware that these kinds of corrupt practices go on. What is required is that the citizens scrutinize these agencies more closely, in order to prevent these things from getting out of hand.  

Brian: Ok. But rather than scrutinize and try to affect government agencies in your capacity as a democratic voter, couldn’t you just as easily, if not more easily, scrutinize and try to affect private safety organizations in your capacity as a consumer or consumer advocate?

Leftist: Well, I suppose you could. But why go through all the trouble to replace the government system that we have with an almost identical private system? I suspect that the only reason you want to do so is in order to maintain the purity of your libertarian ideology.

Brian: Because I have reason to believe that the private system will outperform the government system. Government safety agencies have a tendency to over-regulate, and because they have a coercive monopoly, there is no way to escape this over-regulation.

Leftist: Over-regulate? Who says?

Brian: It’s just a function of the way that the incentives are lined up. If a government over-zealously passes safety regulations that aren’t really worth the cost, the result is that some consumers and some businesses are annoyed. If a government fails to pass safety regulations that are worth the cost though, and someone is injured by a dangerous product as a result, there will be a big scandal. Annoyance is unlikely to translate into too many lost votes come election time, whereas a serious safety scandal could well be a significant factor in an election. As a result, the political masters of the safety agencies will want them to lean on the side of caution, thus producing a tendency to over-regulate. Similarly, annoyance is unlikely to result in safety bureaucrats losing their jobs, whereas a serious scandal probably would, thereby reinforcing the tendency to over-regulate.

Leftist: True, but you forget that politicians are reliant on the support and donations of big companies, whose ‘annoyance’ could therefore lead to serious problems in an election. And, for the bureaucrats themselves, there’s the ‘revolving door arrangement’ we were just talking about, which will mean that the safety bureaucrats won’t want to annoy the big companies in the industry through over-regulation. These will result in a countervailing tendency towards under-regulation.

Brian: Very astute of you! What you say is true. But this tendency to under-regulate that you described only applies to the activities of the companies with significant political clout, whereas the tendency to over-regulate that I described applies generally. The result is that while these tendencies may approximately balance one another out when it comes to regulating the activities of large companies with political clout, the activities of companies without political clout, especially smaller ones, will still tend to be over-regulated. In addition, this state of affairs will result in an artificial advantage accruing to large companies with political clout at the expense of their competition, which will result in an unwelcome distortion of the market. Thus, what you say, while true, hardly makes the case for the desirability of monopolistic government regulation.

Leftist: Ok, but where safety is concerned, over-regulation is much better than under-regulation, so I don’t see anything wrong with this incentive structure.

Brian: And I’m sure other people who are particularly cautious would agree with you, whereas others might not. But here’s the thing: in a free-market system of safety certification, you and the cautious people could have your preference satisfied, while the less cautious people could also have their preferences satisfied! You would only buy products approved by a very zealous and rigorous organization, and would be willing to pay for the privilege. Less cautious people might choose to buy cheaper products that were only approved by a less zealous and rigorous organization. In a monopolistic government system, the only safety versus utility/price trade-offs allowed are those approved by the regulators. In a free-market system, people can decide on their own desired safety versus utility/price trade-offs, and trust the certification organization whose risk tolerance is closest to their own. In addition, competition between the certification organizations will result in improvements in their service offerings, something that is lacking in the monopolistic government system.

Leftist: Fine, but this is all still very theoretical. Do you have a concrete example of government over-regulation?

Brian: I think the case of raw milk is a good example. Many western governments do not allow the commercial sale of raw milk, but require that it be pasteurised first. Pasteurised milk keeps longer and is generally safer to drink than raw milk; but advocates of raw milk say that milk tastes better and is more nutritious when raw. If proper safety precautions are taken and the milk is consumed in a timely fashion, raw milk can be safe as well. There are multiple possible explanations for the governments’ ban on raw milk. It could just be a classic case of over-regulation: where the government doesn’t want to be caught in a safety scandal by allowing the sale of a potentially dangerous drink. Or, it could be related to the political clout of the big dairy companies who hold major market share in the pasteurized milk market, whereas raw milk is generally the province of smaller dairy organizations. Perhaps both explanations are partially true.

Leftist: Or, it could be that banning raw milk is just good food safety policy!

Brian: Perhaps for many people it is, but obviously the raw milk advocates disagree. On a free-market for food safety certification, both groups could have their way without conflict. Perhaps raw milk wouldn’t be approved by any of the very zealous food safety organizations, and safety conscious people would avoid it as a result. But perhaps more accommodating food safety organizations would approve certain brands of raw milk, and then raw milk advocates could buy these brands. There is no sense forcing a one-size-fits-all policy on everyone when a more flexible approach can result in more people having their own ways.

Leftist: Well, I’m still a bit wary of the whole private safety regulation idea, but I think I do have a bit more respect for the libertarian position on the issue now.

Brian: I wouldn’t dare expect anything more. Thank you!