“If you wanted to fly and there were no supervisory authority in the airline industry and no regulations enforcing safety standards, you would be very reluctant to fly fledgling airlines. You would prefer the established ones that had the track record and the reputation. So a complete lack of safety regulations in the airline industry would favour established firms, making the entry of new ones impossible and killing competition and consumer choice.”
Raghuram G. Rajan and Luigi Zingales, from page X (in the Roman numeral segment) of “Saving Capitalism from the Capitalists.” Published in 2003.
This is an interesting defence of government-imposed safety standards. I am not wholly convinced by this line of argument; it is, for sure, an interesting way of trying to show how government regulation actually stimulates rather than restricts entry into a particular line of business.
My take is that if a fledgling airline, say “Ultra-Cheap Airlines Inc.,” can persuade investors and others to get it started in business with a few aircraft and so on, then the staff on the aircraft – such as the pilots – will not set foot into an aircraft if they fear that safety has been compromised, or if the aircraft are poorly maintained. Pilots are not usually self-destructive, as far as I can tell. In fact, a debutant airline business would bend over backwards to show customers that it had set high standards, get consumer watchdog organisations and other certification providers to give it a “seal of approval”. What the authors of the quote don’t seem to understand is how the “established” airlines got to be in that positions in the first place. Presumably, they had to start by persuading a highly nervous customer base that flight was safe, or at least, not lethal.
And of course, if the standards imposed by regulators are particularly onerous, then it is hard to see how a small business operating a few aircraft could afford to compete with the big boys. Regulations are a form of barrier to entry, much in the same way that extensive licensing of doctors is designed, quite deliberately, to regulate the number of people working as physicians.
This book is generally pretty good, however; it is interesting to read this book alongside the Martin Hutchinson/Kevin Dowd book about financial markets that I quoted the other day.
In the absence of government regulation, we could well end up with independent certification bodies for airlines. You would fly on one that didn’t have a safety approval at your peril.
Besides, safety is not the only consideration – cost is another. Most people seem to understand, at least intuitively, that there is no such thing as “100% safe”, especially when it comes to flying. With air travel still being a considerable expense for most people, cost is not a trivial matter, even vs. safety considerations.
In earlier times Rust Bucket Airlines could find both crew and passengers, but they might struggle to break into today’s more mature market – even with a lack of regulation.
Having said that, there are still places, in remote areas, where the only way to get about is in some beat up old crate where you either take the risk or don’t fly. Then there are probably still places where the certification procedure and regulatory bureaucracy is so corrupt that flying an airline thus registered is taking your life in your hands.
And then there’s the A380.
I wonder how difficult it was to convince people to fly 100 years ago when air-travel was still a novel invention. Little to no regulation existed, and yet people still took to it with enthusiasm.
“So a complete lack of safety regulations in the airline industry would favour established firms,”
I keep hearing this stuff everywhere, rather tiresome. The idea that a firm/company/industry can never regulate itself as well as the state is bogus. Private certification providers have enormous incentive to ensure their respective “seal of approval” goes untarnished.
‘The idea that a firm/company/industry can never regulate itself as well as the state is bogus.’
Condor, you said it much more succinctly than I could have.
The idea that anyone in the ‘running the business and making the decisions’ chair would propose ‘Gee, let’s just keep flyin’ ’em until the wings fall off and if we lose a few in the process, well, so what’ is idiocy. Even if such a thing were proposed, fellow ‘decision makers’ might just have said individual, um, removed from their post.
Business are generally not run in a suicidal mode.
There have been successful, SAFE business run for decades L O N G before gov’t started sticking its nose in and ‘helping’.
PeterE:
There’s no could about it. Dozens of industries in North America that started before the twentieth century worked just that way. Elevators, for example, which presented much the same public-acceptance issues as air transport did, still have independently-developed standards (ASME & CSA). The actual certification is now government-run, though, presumably because independent certification hadn’t fully matured when the modern obsession with government regulation came along in the twentieth century. Even older industries, such as steel-making, have both independent standards and independent certification.
If we did not have government regulation in the air transport industry we would for certain have independent standards and independent certification.
Didn’t one of these minor airlines just have a plane catch fire and blow up in Russia recently? Let’s be honest: catastrophic incidents involving minor airlines in Third Word countries hardly ever make the news because they’re frequent, and because their operating conditions are, well, Third World. As we all know, “Russian airlines”, “high maintenance” and “concern for passengers’ wellbeing” are not often, if ever, found in the same sentence or even paragraph.
Let that happen to United, BA or Lufthansa, and it becomes big news because of the rarity of the event.
The uncomfortable reality of the market is that someone can ALWAYS find a cheaper way to offer a product, but the other uncomfortable reality is that this discount has to come at the expense of one of the legs of the Iron Triangle (cost, quality, time). Once the efficiency curve has flattened, as it must, one of the three is ALWAYS compromised for the sake of market share.
I’m not a huge fan of government regulation: quite often, the regulations are gamed by the major players to their own advantage.
But I’m absolutely in favor of SOME government regulation. If the No-Regulation Fairy waved her magic wand tomorrow and made all government regulations disappear, planes would be falling out of the skies like hailstones within a matter of months, once the finance departments started running their little actuarial scenarios which triangulate the risk/reward/cost/benefit factors.
The only people who would benefit greatly would be the tort lawyers, and who wants to give THEM more money/influence?
As with all things, the trick is determining where on the “Over-Regulation/No Regulation” line one has to set the optimum, because neither extreme is desirable. Letting “the market” set the optimum is not desirable, because, as noted above, there are always people (and I mean passengers) who are prepared to risk their own safety for the sake of accessibility, cost or circumstance. And as long as there are those people, ‘the market” will find a way to accommodate them.
It’s worth mentioning that this argument applies equally well to banks.
The Rothbardian brand of Austrian Economics claims that only gold is suitable as money. They claim that notes and accounts should be 100% reserve. They say it’s a failure of the law that banks are permitted to use fractional reserves.
If customers really wanted 100% reserves for extra security then it’s quite legal to do that. In fact there are some banks today that do it. Banks have been able to do it forever. In reality 100% reserve banking hasn’t become popular because customers don’t think that the extra security is worth the cost.
killing customers is bad for business
To reiterate what Current said about the banking industry. The onus of how much/little risk you want has always rested with the customer. Remember the scene in “Rainman“when Dustin Hoffman’s character freaks out because he wants to fly a different airline than Tom Cruise wanted? Kinda like that.
I highly doubt that the “planes falling out of the sky like hailstones” scenario Kim paints is an accurate depiction. Almost all major companies now have people who work on “risk management” and “game theory” knowing what they face and well as their competitors. If anything, the sudden removal of regulations would make air-travel safer, since it becomes the airline’s responsibility and no blame can be placed on incompetent gov’t inspectors/bureaucracy.
I Remember the question people asked: “If the Blackbox is indestructible, why not make the whole plane likewise?” They forget that it’d be too heavy to fly.
Two words: Underwriters’ Laboratory.
It’s not a new argument; it’s trotted out all the time by authoritarians and their apologists. And despite its presentation here as an undeniable truth, it’s palpably false. As has already been noted by others in this thread, private certification bodies would most certainly take over the job, as they did in the days before the professional busybodies started their radical expansion of government and its regulatory powers.
What is also invariably overlooked by fans of government regulation is that regulatory agencies are invariably captured by the industry they purport to monitor. The same is not true of private certification bodies, who have a vested (read: financial) interest in doing a good job. Government bureaucrats have no such direct, personal interest in the quality of their work; their incentives lie completely elsewhere.
Kim du Toit is just wrong, on several levels. First of all, in the absence of government regulation planes would most certainly not be “falling out of the skies like hailstones within a matter of months.” It’s just not good business, as even the much-vilified finance departments would recognize. Second, even assuming that were true, and accepting his dictum that “there are always people (and I mean passengers) who are prepared to risk their own safety for the sake of accessibility, cost or circumstance,” by what right does he (or anyone else) deny them that choice? Whose business is it if I want to assume greater risk in exchange for a lower price or more convenience?
In the end, government handles regulation just as it does everything else it attempts: poorly, inefficiently, and at high cost (both direct and indirect). If this quote is representative of the book it’s a poor inducement for me to read it. I expect that I’ll pass.
Totally in agreement with Laird. If this is the best argument that can be made for government regulation, then we can all get a good night’s sleep in before the debate.
Upon closer examination, I see that the issue here is whether state intervention is justified in the name of competition (the end justifies the means?). The same tired line has been used for anti-trust legislation, taxes, and other goodies.
This creates more questions than it answers. Why would I prefer an old airline to a brand new one? Does old actually mean safer? How exactly does gov’t regulation level the playing field for newcomers ?
Any new player seeking to enter an already established industry will face challenges. For them to throw a tantrum and get the state to intervene on their behalf “in the name of fairness” simply betrays their ineptitude.
The argument that regulations are necessary to protect passengers is, to me, very weak. The argument that, as an individual walking down the street with no relationship with the airline, regulations are needed to prevent aircraft dropping on my head, I find harder to argue against.
Kim:
I suspect that’s the exact opposite of what would actually happen. The existence of government regulations is a huge subsidy to the air transport industry because it severely limits their liability risk. That’s one of the reasons it was the air transport industry that lobbied to get the regulations in the first place. Without that limit on liability, the cost of accidents would be higher to the airlines than it now is, creating a greater incentive for safe operation.
It’s very much like what happened when the railroads were protected from liability for damages caused when sparks in the exhaust of steam engines started fires. Or how governments limited the liability of companies in the fledgling nuclear power industry, to help promote the industry. There’s plenty of evidence that government regulation reduces incentives for private actors to act in the interest of the public. And there’s plenty of evidence that industries will act in the public interest if (true) market forces are allowed to act.
The reason we see so much government regulation is simple impatience. Impatience to let a new industry develop naturally (as when the telephone monopoly in the U.S. was formed just as the majority of players in the market were agreeing on voluntary standardization). Impatience with social change; whether it’s motorcycle helmets, seat belts, bicycle helmets, or any of the countless other unnecessary regulations, the desired social change was already well underway by the time the regulations came into effect.
The argument that regulations are necessary to protect passengers is, to me, very weak. The argument that, as an individual walking down the street with no relationship with the airline, regulations are needed to prevent aircraft dropping on my head, I find harder to argue against.
Paul:
I agree that there’s some difference between passengers and pedestrians, but I don’t see the difference as being as great as you do. Yes, passengers voluntarily get on board the plane, and that’s an important distinction. But passengers have the right to expect reasonable care on the part of airlines, too.
In my opinion, neither case justifies regulation by government. The process of civil regulation that we have in most developed countries is one of the most important inventions of all time, and it’s a shame that we don’t make better use of it.
Well, capitalists are fallible, too: they will cut their maintenance to the bone and then one day, whoops!
As a solution, I offer a thought I’ve often had: many of society’s problems could be solved by a more relaxed definition of justifiable homicide….
Airlines (like other enterprises) are concerned with their REPUTATION – as well as the risk of being sued to bits.
Unless, of course, they have the defence of “we obeyed the regulations”.
As so often the quote from the statist is the opposite of the truth.
The regulations willbe drawn up in such a way as to make it harder (not less hard) for new entrants to the market getting in (“you did not undergo testing in X place” “we do not fly there – and we did not know” “no excuse – and this form is not PINK and made from the special BONGO BONGO tree, your licence to fly is revoked”).
And, of course, will not save lives – rather the reverse.
Once.
Excellent post by Tedd at 9:48 PM. I couldn’t agree more.
So zepplin flights declined because of government regulation?
Or because a “safer” (or at least on less capable of killing 100 people at a time) means of transport was available?
Regulation is the tar baby/Brer Rabbit of commerce. The big companies chuck theatrical fits over new regulation secure in the knowledge it is making the possible start up of a competitor that much more unlikely.
It really is that simple.
Airlines (like other enterprises) are concerned with their REPUTATION – as well as the risk of being sued to bits.
Then you get companies making an assessment on what the legal costs would be if safety is not taken into account, it will still result in safety being compromised for purely economic reasons, regardless of legal or reputation risk.
There have been one or two instances of lawsuits over the years on this issue, the only one I can google is car safety “Anderson vs GM”..
Good comments…
You want my 2c… Obviously there will be regulations or some form of code of conduct worked-out by the industry itself. Paul makes a good point wrt to reputation. After a chaotic trip back from New York my mother has signed a pledge I took years ago “Don’t fly Delta”. Her luggage eventually made it back after flying the scenic route. Apparently her hair dryer still raves about the splendours of the Hanging Gardens of Babylon. But it’s a wider issue than that. In a sense every aerial mishap harms the industry overall. The airlines (like the elvator guys as mentioned above) therefore have a vested intrest in not letting cowboys on the ranch. A good vested interest.
NickAir with a spanky new fleet of 737-800s won’t struggle to make the grade. Indeed as a new kid on the block the other airlines will welcome such a neatly turned out one as far as safety and the like are concerned. A not unrelated issue is the manufacturers and the market is dominated by only two of course. If ShonkyAir totals a A320 say then that casts a pall over everyone who operates the type until it is the cockpit voice-recorder shows the last words of the captain were, “Yeah baby, you suck like Robin Williams playing ‘sensitive'”*.
The real barrier to NickAir is not safety regs but routes and take-off/landing slots. In those the big boys sit like veritable dogs in the manger. Who can forget BAs dirty tricks contra Virgin or indeed even Skytrain?
So the barrier to entry is not safety regs and the like but operational ones and essentially that comes down to runways and NIMBYs and Greenies throwing the most absurd hissy fits. Seriously the second runway at Manchester provoked more Sturm und Drang than if instead it had been proposed to build a ziggurat upon which virgin sacrifices were carried out**.
But even that isn’t the real barrier to entry. The real barrier is $$$ because setting up an airline is not setting up a hot dog stand. In a way that gives me confidence because that usually means accessing a major line of credit and we all know banks scrutinise borrowing such large sums very carefully.
Oh! They don’t. I mean I go over my limit by a few quid and it’s Cardinal Fang and the Comfy Chair but… Speaking as a former shareholder in Northern Crock I’d best shut up on this or be here all day.
Anyway, back to air safety. Well, I’m an aviation nutter (possibly because I’m scared of heights) and the only airlines (apart from the accursed Delta) I would have qualms about flying are “flag carriers” for potless nations that are not really commercial enterprises but vehicles for national esteem. “I hope you enjoy your flight on Uzbek Air” must be the most terrifying words heard in the cabin of any clapped-out Tupolev with more miles on the clock than a Huddersfield bike. I have seen such things and they are testament to the miracle of duct tape. I once flew Air Adria in a DC-8.
So I’d rather fly with a start-up (perhaps our host’s – he’s got the surname for it…) than a shonkulent “flag carrier” and that I think says it all about the role of gubbermunt in air-travel. Safety standards, maintainance schedules and all are best worked out by builders and operators.
A final point. This come back to Paul capitalizing the word “REPUTATION”. The problem with fixed (read government) standards is that they produce a flight to the bottom. They are never aspirational. Ever. Not in anything. A recent UK Gov arseholery was to require that 2Mb/s broadband was rolled out to sheep farmers in the Orkneys by some date. Not very fast is it? You can bet your dolly donuts that that industry will see that as all they have to do. Enforced standards are enforced mediocrity. That is a universal statement that I would fly Delta to defend. Look at the Dutch auction that is the National Curriculum. If they are still (and they are) arguing the toss about how to produce numeracy (aka adding up) after 10+ years of state neducation then (to bring it back on topic) how do you expect anyone to maintain a Trent 900?
*You think that’s far-fetched? The Russians lost an airliner a few years back because a pilot allowed his young son to fly it.
**I’m wrong. People would come from as far as Stockport to see that – I would – just to marvel that they’d found a virgin in South Manchester. If they also found three wise men I’d be shitting myself.
Newsflash Ian F4, there is always a compromise between safety and economics.
When the government sets the bar too high, that’s an inefficiency and a waste of money. When it sets it too low, there’s no incentive to go higher (when things go wrong, those responsible are shielded from blame). Where’s the incentive to improve? Much better (and sometimes cheaper) safety solutions often are at best disincentivised because of government regulation and at worst outright disallowed.
How much fuel each year is wasted on maintaining and carting around hundreds of life-vests on millions of flights when it’s an open secret that if you’re going down, you’re not going to be getting the chance to use it (A small handful of flights excepted). Small inflatable life vests are available cheaply. If the airlines didn’t provide, would you bring your own?
Ian F4:
I’ve always had a hard time understanding what it is some people find compelling about this argument. It’s economic reasons, precisely, that motivate a company to follow government regulations, too. The ultimate threat that regulators hold over an airline, for example, is the ability to restrict or withdraw its operating certificate. That would be financially disastrous for an airline because it’s such a capital-intensive business that they can’t function for long without revenue, and because even a short term loss of certification would damage their reputation so severely that they would likely go out of business.
What’s odd for a person like me, who defends civil regulation, is that we have to defend it simultaneously from those who think it’s too weak to be effective and from those who think it’s so powerful it’s ruining society. Not infrequently, these contradictory opinions are held by the same person at different times of the day. My belief is that it’s neither, and that — despite its flaws — it’s better than anything else we’ve come up with, and much better than government regulation.
No, what’s “odd” is that you fail to recognize that your position is illogical for two entirely different reasons. Those are not “contradictory opinions” by any means; I hold both myself, simultaneously.
Pervasive “command and control” governmental regulation is both ineffective (in that it tends to regulate the wrong things, and discourages innovation and alternate methods of achieving desired goals) and bad for society in that it ultimately works to protect entrenched interests and discourage new market entrants. Both points have been made above in this thread. They are separate arguments, each perfectly valid on its own merits, and they are complementary. Your position is erroneous for both reasons.
Tedd, on re-reading your post it occurs to me that I may have misunderstood what you were saying in that last paragraph. I took your phrase “civil regulation” (a term with which I am unfamiliar) to mean governmental regulation, but perhaps by it you meant private governance bodies such as Underwriters Laboratories. If so, I apologize for the misunderstanding.
Laird:
Your correction is correct, and I apologize for using a term that’s not really very conventional without defining it.
“Civil regulation” is a term that’s fairly new to me, too, but I think I’m more or less using it correctly. It’s regulation created outside of government — i.e., wholly within civil society. Your example of UL would be such a case. It also includes civil (i.e., tort) law.
It’s my belief that with the combination of criminal law, tort (and contract) law, and civil regulation such as UL, SAE, ASME, etc. there’s no need for government regulation and the market distortion that inevitably accompanies it.
The best way to know whether government regulations (of any kind) are any good would not to get rid of them, but make them optional and competing with other certifying bodies.
If then they were any good and relevant, everyone would use them to their benefit.
3rd party certification of the airlines safety protocalls.
And there are probably other ways of proving certain standards.
Airlines should be regulated more for the fact that airports are in densly populated areas, and a crash in such an area would be disasterous.
Ted, thanks for the clarification. I should have known better. Again, my apologies.
As always in this website, I find myself nodding in agreement with the principle. And then, in steps Ugly Reality to ruin everything.
I’m all for the idea of the proposed Samizdatian principle — until I ask the thorny followup question, “…but how, exactly, is [principle] going to be implemented?”
Let’s apply the “but how” question to the concept of private certification.
By the industry itself? Nope: self-regulation doesn’t work. The most casual study of history makes that a non-starter in any realm, let alone the airline industry.
By an outside organization? Which? Underwriters Laboratory? That’s an arm of the insurance industry — and lest we forget, the insurance industry is one of the most profit-oriented industries in the history of civilization. Certifying coffeemakers’ safety is an order of magnitude smaller a task than a massive, dynamic and near-universal product like “airline safety.” If you think the insurance industry runs our lives now, just wait.
How about a consumer watchdog group, like Consumer Reports? Maybe, until the group is heavily influenced (as CR has been in recent years) by a bunch of Greens and anti-capitalists.
Don’t remember the philosopher who said it, but the expression, “Only God is completely random” should perhaps be paraphrased as “Only God is completely impartial.”
Now I KNOW that government sells itself as impartial [pause for derisive laughter], but at least government is less likely to be influenced by the profit motive (absent outside influences, yet another can of worms).
And I know, government subsitutes “control” for “profit” in all the above scenarios — but on the whole, I think less malevolently (in terms of outcomes) than the alternatives.
Best of all (in the U.S. anyway), we can at least exercise a modicum of control over government by controlling its funding.
Which of course leads to the final thorny question: who pays for private certification? There are three, and only three options available.
– The industry? Uh huh.
– User fees? Collected and disbursed by whom?
– Taxes? Not optimal, but probably, in the long run, the best of a set of lousy options.
As a man whose business travel once made Brian’s journeys look like an infant’s meanderings, believe me when i say I’ve thought about this issue many times. All the answers suck, just some worse than others. On the whole, I prefer the government option, for all the reasons stated above.
It’s not perfect, but then, as a wise friend once said to me: “Show me where there’s perfection, and I’ll buy the tickets.”
An appropriate analogy under the circumstances, I think.
Kim, one reasonably achievable way to do it is to allow contractees (the airline and the passenger) to establish tort terms prior to executing the contract (traveling on the ticket). One airline may offer no compensation at all for a safety failure, another may offer a lot and feature it in their advertising.
Airlines would still need to carry liability insurance against non consenting risk (an airplane falls on your house) but that could be done by eliminating limited liability (which is actually just liability redistribution) and moving the liability insurance purchaser from the corporate office to the stock brokers office. Liability insurance should be attached to stock share and its cost should alter the net value of the stock.
Nobody really wants no air safety regulations in some kind of reductio ad absurdum argument.
The problem with governments is that they often start off with good intentions on things like safety and then go too far. They soon want too many regulations, too many people to make them, too many plush buildings to house those people and lots of logos, mission statements and conferences in expensive hotels too.
Actually, I don’t think that it is very often that they start with good intentions (not that it really matters).
Kim, I would absolutely prefer to have the greedy, money-grubbing, venial insurance industry regulating safety than the government. I don’t trust anybody to do it who doesn’t have an obvious financial stake in the outcome.
I find myself in rare agreement with Kim du Toit on this. The issue is simply one of the complexity of the risk assessment.
A comment was made up thread about how if it was too risky then you wouldn’t find flight crews or staff for the flights. Except who makes that assessment? The pilot of Alaska Air 261 had something like 10,000 hours of experience and got onto an aircraft where the maintenance schedule had been dangerously eroded on a piece of equipment that people didn’t understand properly. Not only did he board the aircraft but so did a bunch of airline management and their families. The lack of understanding of the jack screw issue was such that the engineering and flight management team in Seattle tried to dismiss the problem and tried to get the crew to fly onward to Seattle rather than try an emergency landing.
So it’s not just about offering insurance or not offering insurance, it’s also about understanding the risks associated with a particular course of action and, also, having a system available to figure out what went wrong, and why and how to ensure that systemic failures do get engineered out of the system.
Looking at the British System, while the CAA is mandated by law, it’s actually no funded by government but by the members and seems to be a pretty compact organisation, if I’m to believe its stuff is just over 1000…
Midwesterner: any system which relies on people to opt out of risk would probably be doomed to failure as people, post an incident, demanded to know if their relatives were truly informed of the risk – especially if personal life insurance policies or similar refused to pay out because an individual had assumed a risk they deemed to be too high. If pilots, airline staff and engineers in the industry don’t fully understand the risks, I think it wouldn’t take long for a jury to decide that an individual couldn’t possibly make a sensible risk assessment of their own.
Outside of a drastic, and ground up change to the entire concept of tort law in the US, UK and elsewhere I just see this sort of thing as a complete non-starter.
Laird,
Sorry, but that smacks of simplisme. I read an article recently which basically went along the lines of, “Well, the railway-, oil- and steel robber barons were bad, but at least they left behind a national rail infrastructure, an efficient oil industry and a steel industry that armed America in WWI and WWII.”
The minute one allows an industry to be run purely on the profit motive, one opens the door to an oligolopoly, which does not always come out as benevolent as you seem to think it may. One doesn’t even have to go far back in history to find a recent example — witness the current Russian oil industry, which was set up in a vacuum of government regulation following the collapse of the Soviet govenment. The baleful outcome of this little bunch of billionaire thugs’ reindeer games has yet to play itself out, but it’s not going to be pretty.
And sadly, your “profit-motivated” beau ideal might even turn out okay in law-abiding, neo-capitalist societies such as the United States, Japan or Europe. I’m not at all sanguine about its efficacy in, oh, Africa, China and Eastern Europe, to name but some. You sure you’d trust your life to Air Venezuela’s safety certification process?
Once again: Lofty Principle encounters Ugly Reality, and gets mugged and raped.
Huh? Where’s Tim?
Sorry, Kim, but all your examples are illustrations of crony capitalism, i.e., government putting its finger on the scales. Monopolies, and even oligopolies, cannot exist for long without governmental support, as you well know. I don’t accept the existence of governmental distortion of the market as justification for yet additional governmental distortion.
Kim:
Your argument about an imperfect system cuts both ways. I would make exactly the same argument about self regulation.
I have to side with Laird on this one. Every attempt I’ve seen to show how self regulation doesn’t work has only ended up showing how crony capitalism doesn’t work. There are countless examples of self regulation working perfectly well, but they work so well that they’re invisible to us most of the time.
I’m about to take a bath. The plumbing that brings the water to my tub is built to standards developed by the plumbing industry. It’s heated by a water heater built to standards developed by the gas industry. When I get out, I’m going to ride my motorcycle, built from nuts and bolts and wire and metal and oil and rubber and plastic all made to standards developed by industry. I’ll ride to work, where I will design products according to standards developed by industry. My whole day will be filled with interactions with successful examples of industry self regulation, and so will yours.
I believe that in the rail industry all the major safety innovations like signalling, interlocking, continuous brakes etc were developed by the industry and adopted by them independently. The only involvement of government was to force the laggards to adopt earlier than they might.
That is to say the government had little effect on the LNWR, GNR, GWR etc but forced minor railways (often lossmaking) to comply.
By that example we can expect the major players like BA, AF/KLM, Lufthansa et al to fly safely without intervention but perhaps not the minor airlines.
I’m not arguing either way here. I just think this example might be illuminating. Safety laws were much rarer and slower to be passed in those days.
TDK:
In the beginning, yes. But the next step after standards is certification. If governments resist the temptation to force certification on an industry it will develop its own. Scuba diving, auto racing, and ultralight aircraft are all examples of industries with potentially hazardous products where self certification is the norm.
Once the airline industry agreed on a certification process (probably in conjunction with their underwriters), no airline could expect to operate as a successful business without complying.
My view is that
1. Acceptable standards of safety change from time to time. If the safety standards of the late Victorian era had been imposed on the early railways they would not have been built. Full stop.
Without telegraph railways could not operate signals and instead relied on time interval. This method was not only highly, dangerous due to the frequent break downs of trains, it also reduced the capacity of a line.
[PS: Huskisson was far from the first railway death.]
2. The aviation industry also began in an era when the safety possible was far less than today. Again this was a technological limitation not a legislative one.
3. Despite the dangers of air travel, there was a market, and this was not comprised of the poor. The R101 and Hindenburg passengers were people who could afford to choose how to travel.
4. Safety is a relative concept. We can only guarantee 100% safety when we spend an infinite amount of money. Since we have only limit resources we must compromise.
Train line capacity is such a compromise. More trains increases the risk of collision. Block signalling reduces the risk.
5. The argument for state intervention relies upon
a. The market will force competition and safety will be sacrificed to save costs. This can be restated as people will take a stupid risk to save a buck and poor people will fly without safety rather than not fly at all.
b. Lack of perfect knowledge. It is impossible to discern the relative risk. Or people do not have the intelligence to weigh up the relative risks.
It is difficult to find any argument for intervention that doesn’t at root rely of protecting the public on the grounds of their stupidity or powerlessness.
7. If we must have intervention then it ought to be limited to setting a higher value on human life or injury, not on the actual method. It amazes me that in the age of DLR driverless trains, the Paddington crash was caused by the driver failing to see a signal. This is not markedly different from the late Victorian era.
Tedd: I’m not sure you actually know where your standards come from.
I’m about to take a bath. The plumbing that brings the water to my tub is built to standards developed by the plumbing industry.
And maintained by government (national and local) inspectors – especially for new builds.
It’s heated by a water heater built to standards developed by the gas industry.
And overseen in the UK by Corgi which runs a government mandated standards system.
When I get out, I’m going to ride my motorcycle, built from nuts and bolts and wire and metal and oil and rubber and plastic all made to standards developed by industry.
Standards perhaps, but quality checks and controls are overseen by a large number of governmental oversight bodies who maintain safety standards. I’d bet money that all the parts that you describe will have a CE mark on them (http://en.wikipedia.org/wiki/CE_mark)
I’ll ride to work, where I will design products according to standards developed by industry.
And overseen by whom? I’m struggling to think of a single consumer product industry that doesn’t have some external interaction with something like the CE organisation, or mandatory conformance to external safety and environmental guidelines. There’s a reason why it makes the evening news when a batch of Chinese Toys made with Cesium laced paint reach the West.
You might not be aware of how many safety and standards bodies there are involved in the things you do but they’re there alright. And they’re often there because at some stage they weren’t and there were consequences.
It is difficult to find any argument for intervention that doesn’t at root rely of protecting the public on the grounds of their stupidity or powerlessness.
I was smitted earlier.
My counter argument to that is Alaska Flight 261 which crashed into the Pacific in 2000 off the coast of LA. The pilots were veterans with over 10,000 hours each. The passenger manifest included airline execs and their families. The service engineering team had decided to ignore a “guideline” because it wasn’t mandated and they didn’t think it would make much difference if they changed the frequency of lubrication of the Elevator Jack Screw on the MD80. Until the Jack Screw failed. The engineering teams even tried to get the crippled airliner to fly onward to Seattle and no divert because it would be bad for the schedule if they had to land at LAX. The “landing” occurred off the coast of LAX at about 400mph when the inverted aircraft “landed” in the Pacific.
Experienced crews, senior management on the aircraft, an engineering team who decided that the manufacturers “recommendation” could basically be ignored because it wasn’t actually an FAA mandate.
I grant you that I foolishly restricted myself to “the public”, but otherwise, how does that not fall into the stupidity category?
I would say that in this case regulation gave a false confidence.
Daveon, all of the examples you gave were of governments co-opting preexisting private safety standards. That they are all “maintained” and “overseen” by government inspectors and bureaucrats is merely an illustration of governmental overreach, “mission creep” and personnel justification. And they are not merely unnecessary, but largely serve to hamper the development of newer, better standards. Your argument is unpersuasive.
If a private airline short changed on safety and an aircraft crashed – it would be SUED TO BITS.
Even if (by some weird chance) it was not sued to bits, its REPUTATION would be destroyed as soon as the short changing of safety was expossed. Which it would be – that is what investigative journalism is for (even if today one is more likely to find it on the internet than in the newspapers).
An airline whose reputation is destroyed goes bankrupt.
Adam Smith is far from my favourate economist (either in his formal economics or in his policy proposals), but he was correct that the butcher is worried about the soundness of the meat he sells, not because he loves his customers (he may never have meant this customer before), but because if he sells unsafe meat that causes sickness HE WILL GO OUT OF BUSINESS.
Unless, of course, he say “but I and my supplyers obeyed all the government regulations……”.
Where there is no such defence, REPUTATION is all.
This is really very basic economics (the sort of thing one can find in the “Who Protects The Consumer?” chapter of Milton Friedman’s “Free To Choose”.
There is not much point in debating the finer points of “Austrian School” (and so on) writing (on credit money bubbles and so on) if even basic stuff like this is not understood.
No government is NOT required for “health and safety” – even the man in the street (who has never studied economics even for a day) knows that “elf and safety” is a load of nonsense, that the regulations do NOT protect people, they aid big producers at the expense of small producers.
Not just increasing prices – but also (if anything) REDUCING the quality of goods and services.
In the end even the big corporations can lose (because the regulations can develop a life of their own – getting away from the little deals between agencies and established players) – although they benefit in the short term by elmininating competition (the exact opposite of what the quotation at the start of the posting claims regulations do).
There are, of course, specialist consumer publications.
And there independent testers (who also depend on their reputation) such as Underwriters Laboratories.
It is not in the interests of insurance companies for products or serivces to kill customers.
Sorry Paul, to quote another user, the argument is unpersuasive. An airline might be sued to bits, in fact they often are in the event of a crash. Typically, they’ll settle and go back to operations as normal, even if they’re at fault.
People still fly United even with at least one crash in the last decade linked to insufficient pilot training on the class of aircraft.
Companies are sued all the time. It’s a simple process. If the cost of the settlement is going to be less than the cost of operating in a certain way then they will operate in a certain way.
Likewise companies operate all the time with reputations in the toilet and seem to get away with it. Ryan Air seem to be able to operate a policy of zero customer service, Michael O’Leary is pretty clear that you get what you pay for, and it works for him. I’d put money on Ryan Air being able to crash a couple of 737s and still not have an impact on business.
I’m wondering if BP have tightened up their safety operations, apparently the worst by a mile in the Gulf, when the cost of the clean-up and compensation was still a fraction of their profits and the costs of implementing safer operations…
Laird: Yes *some* of those were government co-opting private standards, but a lot of those standards were co-opted because they weren’t being implemented and things kept happening.
The amusing bit for me with this thread, is that the CAA in the UK is actually not a government body, and the air traffic control system in the UK is actually a private company owned by the airlines who bought the privatized shares to make sure ATC services weren’t a private operation….
It is not an “argument” Daveon – it is a fact, the same as 1+1=2.
I do not not have the slightest interest in “convining” you. You are on the other side – you have made that very clear (many times) in the past.
My intention is to state the facts as clearly as I can – for the benefit of someone who might happen upon this (or some other) thread. Not for your benefit – you are not my concern.
I am not interested in “saving the souls of enemies” (or whatever). I am not a priest and your soul is your own affair – you choose evil long ago. and that is your choice (nothing to do with me).
My interest is in defeating beings such as yourself – not saving you. Therefore when I state the facts I am not really thinking of you at all.
For the basis of economic law in basic logic (of human action) see Ludwig Von Mises “Human Action” (originally 1949).
As for calling statist entities “private” (in the sense of being voluntary – not violating civil society) because they have shareholders.
I see so the Bank of England was part of civil society (not the state) because it had private shareholders till 1946.
And the Federal Reserve system still is.
Pull the other one – it has got bells on.
The mind doth boggle. First, at Kim du Toit, because here was a guy who made a big deal for a long time about freedom, but who seems to succumb to the idea that we need some kind of bureaucracy that has magic fairy dust that gets sprinkled on regular people who will then have more of an intrinsic interest in protecting people than the people who not only have to make a living by the industry they are involved in, but who might die when things don’t go right.
I am so grateful that all the people here have contributed their thoughts to this matter. Tedd and Laird’s contributions would not be nearly as meaningful if they had not had du Toit and Daveon to fence against. Like listening to a debate between Milton Freidman and Paul Krugman, I can be totally assured that I fully understand why I am on the side of free markets and liberty.
Had the Wright brothers, Samuel Colt, Mr. Browning and every inventor and creative thinker had to deal with the mentality of those here who defend the regulation, society would be so much worse off.
Thank God we have had many people who have had the courage to risk something and a public that wasn’t such a bunch of wussies that we could make progress.
If some people want to be protected from every and all danger; fine. But for those of us who want to take risks, get the hell out of our way.
Let everybody be informed of the risks. Let everyone have the freedom to make an informed decision. I want a government to protect me from ONLY two things and ONLY two things: Force or fraud. Everything else, I should have the freedom to choose.
If there are not enough people like me to support an endeavor that takes risks, it will die a natural death.
The most dangerous job in the world is crab fishing in the Arctic region. When the pay no longer is worth the risk or the stupidity of those who are willing to do that reaches a certain point, people won’t be able to eat that kind of crab any more.
Ultimately, what this all comes down to is freedom. Kim du Toit is fully aware that the world is full of people who won’t touch firearms, not because they are inherently dangerous to the user, but because they have bought the lie that only government has some kind of magical ability to be the only ones who can safely use firearms, “for the public good.”
How is it possible that the same man believes that there is a magic pixie dust that makes government work better when it comes to any other human endeavor.
Just coming back to this thread from far in the future…
Daveon:
Having spent thirty years working in various very heavily standardized engineering fields, and having designed products certified under CE, UL, CSA, and various other government, quasi-government, and private certification bodies, I feel confident in saying that I have a pretty good idea where these standards and regulations come from and what kinds of bodies are involved in creating and enforcing them. To paraphrase an aphorism, “Never ascribe to ignorance that which might be explained by greater knowledge.”
I brought up examples of industry standards to demonstrate (to those who might not be aware) that industry does, and always has, developed its own standards. I’m well aware that governments like, for various reasons, to turn these voluntary standards into compulsory regulations. I have argued above why I think that’s a bad idea, and I won’t re-hash those arguments here completely. But, to summarize:
* The combination of civil regulation, free markets, tort law, contract law, and criminal law makes coercive government regulation unnecessary.
* The inevitable rent-seeking consequences of coercive government regulation outweigh any benefits.