The Free Market and Job Safety
The New York Times recently ran a three-part series on a string of tragic industrial accidents at facilities owned by McWane Inc., a large producer of sewer and water pipe based in Alabama. The series describes nine apparently needless and sometimes especially gruesome deaths, as well as several horrendous injuries suffered by workmen. All of them are presented as taking place in an environment of such reckless irresponsibility and callous disregard of the value of human life as to strain credulity.
While one cannot help but feel the greatest sympathy for those whom the series describes as having lost life or limb or suffered disfigurement, and utter horror at the manner in which they suffered, one must also identify the series for what it is, namely, a totally misguided attack on the profit motive and call for further government intervention to overcome the alleged evil of the profit motive. Indeed, the second installment of the series is titled "Family's Profits, Wrung From Blood and Sweat."
The remedy it proposes is increased budgets and greater powers for OSHA, despite the fact that if the series has proved anything it is the uselessness of OSHA and government safety regulations as a means of preventing the kind of accidents it describes. The apparent formula of the series’ authors is that no matter how much government intervention may have failed up to now, still more of it will surely succeed.
The purpose of this article is to show that if the safety of workers is the goal, the free market, and not government intervention, is the solution.
To understand this fact, one must first of all realize that job safety is rarely, if ever, a matter of black-and-white. Probably almost everything could be done more safely than it is done. And, hopefully, as time goes on and further economic progress takes place, everything actually will be done more safely than is now the case, just as today practically everything is done more safely than was the case in the past, when a lower state of economic development prevailed. But, in the very nature of human mortality, it will never be the case that danger can be entirely avoided and safety absolutely secured. Thus, today, there is growing use of safer, anti-lock brakes in automobiles and other motor vehicles. In the future, hopefully, there will be cost-effective computer-radar controlled automatic brakes. But even with such brakes, there will still be dangers of collision, if for no other reason than that of possible computer failure.
Safety and danger exist in different degrees and at any given time further increases in the former and decreases in the latter can take place only at increasing degrees of cost. Improvements in safety that are costless or of insignificant cost can be assumed to be enacted immediately, as soon as awareness of them exists. Indeed, not to enact such improvements is what is costly—in terms of the damage that can be suffered by failing to do so.
In addition to the problem of costs, further complicating matters is that degrees of safety and danger are evaluated differently by different people. There are drivers who take the appearance of a yellow light as a signal to speed up, in order to get through before it turns red, while there are other drivers who respond by slowing down in preparation for coming to a stop. There are workers prepared to make a living catching hot rivets while standing exposed on a steel girder fifty floors up, and other workers who find the mere trip to their workplace to be an anxiety-producing experience.
Perhaps even more importantly, the variety of conditions in which safety and danger exist has no practical limit. In matters of employment, it embraces the production of each and every good or service not only presently produced but that might be produced in the future, and each and every differing method or combination of methods by means of which it is or might be produced.
Because of these facts, it is not only impossible to write all the regulations that would need to be written for the government actually to decree what is and is not safe, but any attempt to do so must prove arbitrary and can easily serve to paralyze rational judgment by means of imposing bureaucratic regulations in conditions that the authors of the regulations did not and could not foresee or did not adequately comprehend.
What is essential for safety is not bureaucratic regulation, but free, motivated human intelligence and judgment, which includes a consideration of the costs of achieving greater degrees of safety. Ironically, the imposition of excessive costs of achieving a higher degree of safety in an individual instance can result in sharply lower degrees of safety elsewhere, as the result of the lesser availability of means. As an extreme example, the cost of a computer-radar controlled automatic braking system is probably still so high that if anyone who was not extremely wealthy had one installed today, he would deprive himself of the means to preserve his very life in all other areas, such as the purchase of food, clothing, and shelter. The purchase of such a technologically advanced braking system in these circumstances could thus turn out to have positively deadly indirect consequences.
To whatever extent additional safety comes at a higher cost, it restricts the ability to make provision for other needs and wants, including safety, in other areas of life. And this remains true even when the higher costs of safety are initially imposed on business firms rather than directly on consumers. This is because higher costs do not lastingly come out of profits but must be covered by higher prices of products or, alternatively, lower wage rates of workers. The great run up in business costs over the last thirty years or so, on account of so-called safety and environmental legislation, has played an enormous role in worsening economic conditions for large numbers of wage earners and ordinary people in general. Those seeking an explanation of such things as the growing need for two breadwinners in a family need look no further.
In contrast to counter-productive government intervention and bureaucratic bungling, a free market achieves greater safety in the individual instance in a way that is consistent with the satisfaction of needs and wants in all other areas, including overall safety. This is because a free market operates on the basis of a proper consideration of costs. In so doing, it also makes due allowance for the differences among individuals in evaluating safety and danger.
Every improvement in workplace safety serves to reduce costs to some extent, simply by reducing the loss and damage caused by accidents. Wherever such reduction in cost outweighs the additional cost that must be incurred to install and maintain what is required to achieve the improvement in safety, the improvement is installed and maintained by business firms in the same way and with the same enthusiasm as any other improvement in efficiency.
Very importantly, a free market also serves to bring about improvements in safety even in cases in which they do not pay for themselves through improvements in efficiency, that is, even in cases in which they result in the incurrence of additional costs. This is the case when the improvements in safety are desired by wage earners strongly enough to induce them to accept lower wage rates to an extent that exceeds what would otherwise be the cost of the improvements in safety. When this is so, the improvement in safety once again turns out to reduce costs and to be the profitable thing to do.
The underlying principle here was explained in part by Adam Smith, who pointed out in The Wealth of Nations that, other things being equal, wage rates are higher in dangerous and unpleasant occupations and lower in occupations that are considered safe or pleasant (Book I, Chapter X). In effect, in order to attract workers to the former type of occupations, a premium must be included in the wage rates—a premium that comes about automatically as the result of the lack of workers willing to work in such occupations except on terms that compensate them for such disadvantages. By the same token, the comparative abundance of the supply of labor attracted to the preferred occupations serves to reduce wage rates in those occupations.
All that need be added to Smith’s principle is that the relative status of occupations and the jobs in the various industries or with this or that specific employer, and the relative wage rates that must accompany them, changes as the result of the adoption of improvements in safety or, indeed, of improvements in working conditions of any kind. It is only a question of whether or not the change in wage rates will be great enough to compensate for the extra cost otherwise imposed by the adoption of the improvement.
A major factor that determines how much of a comparative reduction in wage rates workers are willing to accept in order to achieve a given degree of improvement in their safety, or comfort or convenience, or any other such benefit, is the height of their wage rates otherwise—in effect the height of the base wage from which a reduction is to be made.
In the present-day United States, this base wage can perhaps be taken as something in the neighborhood of $30,000 per year. With a level of wage rates this high, workers can afford to satisfy a fairly wide range of their needs and wants to a considerable extent. Just as they can afford, along with automobiles and television sets, such things as air conditioners and flush toilets in their homes, they can also afford things of comparable benefit to them in their places of work, such as, once again, air conditioners and flush toilets. For even if, as well may be the case, such things as air conditioners and flush toilets in workplaces do not directly pay for themselves through improved efficiency on the part of the workers, it is almost certainly true that the immense majority of workers in the present-day United States are prepared to accept wage rates that are lower in establishments that offer such amenities by far more than the cost to employers of installing and maintaining such amenities, or, what is equivalent, to demand wage rates in workplaces that do not offer such amenities that are higher by far more than the cost of providing such amenities. For example, while the cost of providing air conditioning in the summer heat may amount to, say, $5 per worker per week, the cost in the premium wage rates to attract workers to work without such air conditioning might well be $20 per worker per week. Obviously, in such circumstances, offering air conditioning is the profitable thing for employers to do.
Of course, such would probably not be the case in a Third-World country. If the average wage per worker in such a country is only $1,000 per year, workers in that country are very far from being able to afford even a $5 per week reduction in wages to compensate for the cost of air conditioning. They can no more afford air conditioning on the job than they can in their homes. It should be obvious that to compel employers to provide air conditioning in such circumstances is fully comparable to legislation that would compel miserably poor workers to buy an air conditioner at the expense of food for their families. This is because, as previously pointed out, the expense of the employers does not come out of profits for long but results in higher prices and/or lower wages and in either case serves to reduce real wages.
What is true of air conditioners and flush toilets is equally true of safety devices and procedures. A free market strikes a proper balance in the pursuit of safety in the workplace—a balance that takes into account the real incomes of wage earners, which it constantly operates to increase, together with the importance that they attach at any given time to greater safety relative to other uses of their incomes. All this is conveyed in the extent to which workers are ready to respond to different combinations of safety and take-home wages.
Whenever they prefer a combination of more safety and lower take-home wages to an extent that significantly surpasses the cost of achieving the additional safety and prove this by their readiness to take the safer jobs at the lower take-home wages, employers will soon deliver the greater safety, just as they soon deliver more of any product that is exceptionally profitable and whose supply they are able to enlarge.
In sharp contrast to the free market, which pursues safety reasonably, on the basis of the voluntary cooperation of the parties involved, the government’s imposition of safety takes place by means of the threat of physical force, in disregard of the free choices of the parties in the market. The government’s imposition of alleged safety is literally by means of guns and clubs; i.e., by means of its threat to dispatch armed officers to enforce its regulations—a threat which is and must always be present if its regulations are to be obeyed.
In behaving in this way, on the basis of sheer brute force, in violation of the free judgments of its citizens, which are informed by a consideration of costs and the value judgments of their fellow men, the government’s action is inherently dangerous. In the name of the pursuit of safety, it forcibly deprives men of things they value more highly, which can include safety in areas of life that the government’s officials and their regulations do not see, namely, the safety that must be forgone elsewhere because of lack of ability to afford it.
In driving up costs and prices or driving down wage rates to pay for its arbitrary "safety" regulations, government deprives wage earners of such things as the ability to replace older, worn-out automobiles and appliances with newer, safer automobiles and appliances or to upgrade the electrical wiring or heating or ventilation systems in their homes or to afford the higher rents in apartment buildings with such upgrades. It thus blindly, stupidly, makes people less safe while claiming, and perhaps believing, that it is making them more safe. Government, as the Founding Fathers of the United States well knew, is literally a dangerous beast, which must be caged and shackled and constantly guarded in order that it not to be able to go wandering out on such random courses of destruction.
It is very likely that the destructiveness of unchecked government is very much to blame for the tragedies suffered by workers at the McWane facilities.
In answer to the question "Why would these people choose to work in such a dangerous job," reporter Lowell Bergman, who covered the story for the PBS program "Frontline," stated in the online edition of The Washington Post: "In the case of Tyler Pipe [a McWane-owned company and the subject of the first installment of the Times' series] and what we've been told in that region, there are not a lot of jobs for semi-skilled people that pay more than minimum wage. Tyler Pipe is a steelworkers plant; not everyone's covered by the contract, but it pays relatively well." The clear implication of this statement is that workers valued the higher wages paid by McWane above the greater dangers of working there.
Unchecked government intervention and its effect of sharply lower real wages for large numbers of workers must certainly be considered as a leading cause of the premium placed by McWane's workers on additional real income—to the point of outweighing serious risk to life and limb. The government’s mindless binges on costly legislation that it stupidly believes are paid for out of profits, are driving large numbers of American workers back to the lower standard of living and poorer working conditions of an earlier day.
George Reisman is Professor of Economics at Pepperdine University’s Graziadio School of Business & Management in Los Angeles, and is the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996). His web site is www.capitalism.net. Email: email@example.com. See his interview in the Austrian Economics Newsletter.