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More on Workplace Safety

Posted By Don Boudreaux On June 26, 2005 @ 7:43 am In Regulation,Trade | Comments Disabled

Stirling Newberry disagrees [1] with my argument [2] that safety isn’t free. He says:

The assertion that safety must come at the cost of valuable goods and services is so laughably false that one wonders whether they actually believe this drivel. One more time for the economically impaired:

Increased safety standards don’t necessarily decrease production, if the costs avoided – for example premature death, risk averse behavior leading to less work and so on – are less than the costs of safety standards themselves. They might as well assert that immunization reduces the total production. What safety standards do change is the ability of some individuals to externalize their costs on to other people by health pollution. We should expect the people externalizing costs – that is making money from others misery – to object. But that doesn’t mean that their ability to improve their position at the expense of others adds to total productivity.

Mr. Newberry misunderstands the argument. The argument is neither that increased workplace safety has no benefits nor that these benefits are small. Of course there are benefits to increased workplace safety. But even benefits are not free.

To build a sturdier factory, to equip it with more fire extinguishers, sprinklers, and first-aid stations, to ventilate it better – whatever improvements in safety are supplied require resources for their realization. These resources have alternative uses. The value of the goods and services that these resources would have been used to produce were they not used to enhance workplace safety is the cost of enhanced workplace safety.

That’s the basic proposition.  Safety isn’t free.  (The proposition is not that, because safety isn’t free, it isn’t worthwhile or beneficial.)

Four follow-on propositions are worth noting. First, something that isn’t free – something that has a cost – will not be produced and consumed in quantities as large as it would be produced and consumed if it were free.

Second, benefits are supplied, and costs are incurred, at the margin.  The choice for a factory owner is not: "Shall I make my factory as safe as humanly possible or keep it as unsafe as the laws of physics permit?"  Instead, the question is always "Should I improve my factory’s safety a bit more or not?"  The factory owner weighs the likely benefits to him of prospective incremental improvement in safety against the likely costs to him of supplying this incremental improvement.  If the costs to him are less than the benefits to him, he supplies this incremental improvement.  If not, he doesn’t.

Third, as someone’s wealth grows, so too does his ability to afford greater quantities of desirable goods and services, including safety.

Fourth, the wealthier a society, the more able are its people generally to afford greater quantities of desirable goods and services, including workplace safety.

Mr. Newberry himself understands that workplace safety isn’t free, for he realizes that if a factory owner can externalize the cost of an unsafe factory, then that factory owner has no incentive to increase the safety of his factory. If safety were truly free – costless – even the most narrow profit-grasping factory owner would make his factory safer. ("Why not?" he would reason. "Improved safety costs me nothing and if it makes workers even slightly more pleased and content to work in my factory compared to working elsewhere, I gain.")

Nor do I argue that increased workplace safety reduces total productivity (or total output, which is what I suspect Mr. Newberry means). It might do so. But as Mr. Newberry suggests, it very well might not do so. Indeed, it very well might increase total output.

Let’s assume that increasing a factory’s safety by ten percent (however measured) does in fact increase that factory’s total output. Nevertheless, the factory owner will undertake this safety improvement only if the value to him of the resulting increase in output is greater than the cost to him of the increased safety.

….

Free trade has a long, deep, robust, and compelling record of increasing the wealth of nations. Thus, free trade makes workplace safety more affordable over time. Shortsighted demands that factories in poor countries offer workers the same level of safety as factories in wealthy countries will not make workers in poor countries better off. They will make them neither more prosperous nor more safe.

By barricading poor-country people from integrating quickly and fully into the global economy, such efforts block their access to the wealth that is necessary not only for their greater prosperity, but also for their greater workplace safety.

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[1] Stirling Newberry disagrees: http://www.bopnews.com/archives/003786.html

[2] my argument: http://cafehayek.com/2005/06/environmental_s.html

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