Again, you discount the other regulatory forces at work in the marketplace. Wal-Mart’s neck is on the line if they sell tainted products, and that’s where penny-pinching people go. So Wal-Mart’s buyers are going to make sure that the products they buy meet minimum safety standards.
And let me repeat that while these incentives to self-regulate exist, they would be even stronger if the government stopped being our safety nanny. People are more complacent today in many areas because they just assume that a product must be must be safe or the government wouldn’t allow it to be sold. Take that assumption away, and the market share of the companies with a reputation for safe products will increase overnight.
I can give you yet another example: SCUBA gear. SCUBA is a dangerous activity. The government has virtually no oversight of the SCUBA industry, other than DOT certification for pressure vessels. The diving industry is heavily self-regulated, with organizations like NAUI and PADI maintaining strict requirements. Dive operators have their own certifying bodies and associations, and they keep their member operators in line because they recognize that a lapse in safety hurts everyone. The Diver’s Alert Network (DAN) acts as a statistics gathering service and information clearinghouse for safety concerns.
You’d think that diving would be ripe for exploitation by greedy capitalists putting divers at risk by cutting corners - especially since a lot of it takes place in 3rd world countries and far away from any kind of government oversight. But it’s not the case.
There have been movements by activists to have diving gear regulated by the FDA as medical devices. You can even see the rationale for it - unregulated dive operators can fill tanks of air, and you’re breathing the stuff. There are lots of ways for it to be contaminated. Why should an air tank in a hospital be regulated, but not a SCUBA tank? Dive regulators have oil in them that could be toxic, and this equipment is forcing gases into your lungs under pressure.
In fact, SCUBA equipment is incredibly safe. Major failures of gear resulting in injury or death are almost unheard of, despite the equipment being used in harsh environments with little margin for error.
The result of self-regulation means that the industry has undergone a tremendous amount of innovation. SCUBA gear is incredibly cheap for what it provides: You can buy an entire package of equipment for under $700. Recreational divers are now breathing advanced Nitrox air mixtures, and using sophisticated dive computers. They’re doing it safely, in an unregulated market.
How do you explain this, if markets aren’t capable of self-regulation?
If it saves money, you don’t need the government mandating it. And no, I don’t expect government to keep people 100% safe. The question is whether the government keeps people safer than does the marketplace, and if it does, does the added cost of government regulation and the loss of freedom inherent in it justify whatever increase in safety we might get?
Right. And those companies got punished in the market, and that’s why J&J is now used as the benchmark for how to deal with these crises. But I work in industry, and I can tell you that strict attention to safety and quality is the norm, not the exception. And the amount of effort I see being put into quality and safety goes FAR beyond what government typically requires.
Did the government didn’t tell them to do that, or did they chose to do themselves to maintain their reputation for quality?
Yes, but that can happen with government or without it. Maybe it would be better then to not have government issuing nationwide blanket approvals of products. If they screw up, the consequences could be far worse.
China is a poor example. It’s a heavily state-controlled country filled with corruption and still lacking the well-developed market forces we have in the west. It also has much lower standards of living. And again, American companies ‘before regulation’ existed in a time where we were much poorer and our lack of wealth necessarily meant lower safety standards. We got safer as we got richer, not necessarily because government made things safer. It just takes the credit.
This is why I prefer to compare unregulated industries today to regulated industries today. It makes for a better comparison.
No, I think there will be a mix of big and small companies. I think that brand value will go up. I think that there will be more profit to be had by acting as an intermediary to ensure safety, and companies like Wal-Mart and the big drug stores would take on that role. I think the internet would do a great job of spreading information about risk and safety, and organizations like JD Power and Consumer’s Reports would gain in stature.
I think some risk would go up in some areas, and some would come down, but I think we’d see a big increase in economic growth, dynamism, and innovation, and ultimately it’s wealth that allows you to get good health care and live safely.
When you have a government that is risk-averse loading down your economy with regulations and restrictions, the result is a slowing of economic growth and a reduction in innovation. And that’s ultimately more harmful than allowing people to just make choices for themselves.