Government regulation does not make us safe—capitalism does

Government regulation does not make us safe—capitalism does

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Would you trust government more than business to keep you safe? Amazingly, most people say yes almost automatically when asked. They see government as the trusted nanny that has their best interests at heart. Business firms, on the other hand, are viewed as unscrupulous profit seekers that would not hesitate to compromise their customers’ and employees’ health and safety just to make another buck; they can only be held in check by government regulation. But is this really true? I argue no.

Despite government inspection of food or regulation of pharmaceuticals, for example, food poisonings and Salmonella contamination still happen and drugs with harmful side effects still make it to market. Government-licensed health care providers, day-care operators, and taxi drivers still make mistakes, which negatively impacts their clients and customers. Even if government regulators and inspectors truly care about people’s health and safety (which one would hope they do), they are human: fallible and prone to make mistakes. And as government employees, their incentives to avoid mistakes are limited: if they commit a really grievous error, their jobs may be at risk, but there is no threat of losing business or profits.

For business firms (their owners, managers, and other employees), on the other hand, the consequences of harming their customers, employees, or others, are severe. They may lose their business and their freedom, such as Sohel Rana, the owner of the collapsed factory building in Bangladesh, who is in prison awaiting for trial, charged with murder of the over 1,200 workers who died. Or their profits, reputation and brand value may be severely damaged, like Volkswagen’s after it cheated on emission control of its ‘clean’ diesel cars. Or they lose everything and live in mental anguish, imprisoned, for the rest of their lives, such as Bernie Madoff.

So which is more effective in keeping us—as customers and employees—safe: the government bureaucrat with no personal incentive, or the businessman, whose profits and reputation depend on the safety and satisfaction of his employees and customers?
I argue the latter, because it is the businessmen who have a lot more at stake when their conduct or negligence cause harm to others. However, there are two conditions required for aligning the interests of business and of their customers, employees, and others: free markets and protection of individual rights by government—in other words, a capitalist system we currently don’t have.

First, there must be competition—free markets without government regulation and protectionism—to compel companies to attract the best employees possible (with safe work places, good pay, and interesting work) and to provide the best (highest quality and lowest priced) products and services to customers. Government interference in the markets removes such incentives.

Second, instead of imposing costly regulations that delay or prevent life-enhancing products and services from reaching the market (such as pharmaceuticals), government must protect the individual rights of its citizens against the initiation of physical force and fraud. This should be the only role of government, and it would be sufficient to deter and prosecute any violation of rights by business and others.

The now-defunct Peanut Corporation of America knowingly shipped Salmonella-contaminated peanut butter, causing the deaths of several people and illness of hundreds, regardless of government regulations and inspections. Recently, grated parmesan cheese had been found adulterated with wood cellulose at several U.S. supermarkets, despite government regulations and inspections. There are countless other examples of the ineffectiveness of government regulations in keeping us safe.

If the government, instead of wasting tax payers’ money on costly, needless regulations, performed its proper role in protecting individual rights and imposed severe sanctions for their violation through the court system, there would be much stronger deterrent to businesses than what any regulation can provide. And we would be much safer.

We don’t need the government to regulate business because it is in the interest of business to regulate itself. Particularly in industries where the products and services are critical to our health and well-being, such as pharmaceuticals, health care, food, and automobiles, companies may want to work together to form independent testing or certification organizations.

If we want safer, better workplaces and safer, better products and services, we should ask for less government regulation, not more, and advocate capitalism: freedom and protection of individual rights.

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3 Responses

  1. How did capitalism hold the cigarette industry accountable for causing cancer? How did it inform the public that cigarettes caused cancer?

    1. Thank you for your question, Sean.

      It’s important to understand that there has never been pure capitalism in America. The closest it ever came to it was in the 19th century, after the United States was founded on the principle of individual rights. The system in the United States (and in most countries in the world, outside of dictatorships) is a mixed economy, not capitalism. It is not capitalism that is to blame for any misconduct by tobacco or other companies, but the mixed economy system.

      Capitalism is “a social system based on the recognition of individual rights, including property rights, in which all property is privately owned” (Ayn Rand: Capitalism, The Unknown Ideal).

      In such a system, it is the government’s role to protect its citizens’ individual rights–through the military, the police, and the court system–against the initiation of physical force and fraud. Any company, including cigarette manufacturers, that knowingly sells products that are harmful to its customers’ health without disclosing such harmful effects, is violating the customers’ right to right to life and property. Such companies would be punished through the court system.However, it is up to the courts to establish when a company has the relevant knowledge and engages in deliberate deception of customers.

      Since violation of others’ individual rights would be severely punished under capitalism, such behavior would be deterred. No government-mandated product warnings would be needed–it would be in the companies’ self-interest to inform their customers about harmful side-effects.

      When governments don’t properly protect individual rights–as presently–some companies are more likely to engage in misconduct.

      1. You are not entitled to information. Fraud and lack of information are different things. It is your choice to consume it. Just because it may be dangerous to you doesn’t mean they should tell you. Of course if they say opposite of its effects then that would be fraud.

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Jaana Woiceshyn teaches business ethics and competitive strategy at the Haskayne School of Business, University of Calgary, Canada.

She has lectured and conducted seminars on business ethics to undergraduate, MBA and Executive MBA students, and to various corporate audiences for over 20 years both in Canada and abroad. Before earning her Ph.D. from the Wharton School of Business, University of Pennsylvania, she helped turn around a small business in Finland and worked for a consulting firm in Canada.

Jaana’s research on technological change and innovation, value creation by business, executive decision-making, and business ethics has been published in various academic and professional journals and books. “How to Be Profitable and Moral” is her first solo-authored book.

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