Angel Bureaucrats vs Business Devils?

Why do we think regulators serve the public interest more than businesses?

It's hard to imagine amidst the pageantry of Toyota's executives being called on the carpet in front of pontificating Congressmen because of a supposed manufacturing defect that has yet to even be definitively found, but there was a time when this would have been absolutely impossible.  In fact, for most of America's history, the government had next to no involvement in how manufacturing or business operated beyond collecting taxes on everything they could.

Up until quite recently, customers had to use their own judgment about what goods were safe to buy and their own prudence about operating equipment.  Today, we trust government regulators to keep everything 100% safe, confident that businesses and manufacturers would as soon maim or poison us if not for the enlightened hand of a bureaucrat preventing it.  Why?

Caveat Emptor

When our nation began, there was no such thing as a safety regulator, environmental inspector, or oversight committee of private industry.  Partially, this was because there was no such thing as large industry as we know it today; the biggest "businesses" of 1776 were plantation farms owned by great landholders.

They may have had trading relationships all around the world and moved large quantities of goods but they weren't involved in anything we'd recognize as mass manufacturing.  Thus, the only government contact a plantation owner would have had consisted of paying his property taxes and, perhaps, import and export duties when he traded his goods overseas.

With the coming of the Industrial Revolution, entities resembling modern corporations and factories came into existence.  The Amoskeag textile mills started out owned by one rich man, then several wealthy partners, and eventually evolved into a joint-stock corporation where few of the stockholders knew each other.  The first mills were small family operations, then more and more people were hired until eventually an entire town or even city would be owned and operated as one giant factory where the executives personally knew few if any of the workers.

Just because large industrial concerns existed didn't mean they represented the majority of the economy.  Most economic interactions still took place at the local level, with the town shopkeeper or with traveling peddlers.

Before the widespread development of the railroads, individual salesmen would travel from town to town in a wagon or on foot.  Some of these peddlers had regular circuits, coming by every year or so.  Others never passed the same way twice.

With no practical way to enforce warranties or guarantees of any sort, each shopper had to develop her own ability to identify quality or detect a scam.  With textiles, that's fairly easy.  With other things like patent medicines, not so easy.

Because government interfered very little if at all in the specifics of commerce, "snake-oil salesmen" could and did make any sort of claim for anything at all.  They might be selling actual oil from snakes, but have no factual reason to believe it would help your health.  It might be something like heroin that would demonstrably make you feel better for a while but leave you far worse off by the time it was done with you.

Or it might just be muddy water, and Dr. Miracle made sure never to retrace his steps or cross his own path.  Caveat emptor - let the buyer beware!

Dr. Miracle didn't care about his reputation; he didn't expect any repeat sales because the country was plenty big enough to find some other sucker over the next hill.  The new giant mercantiles of Sears, Roebuck & Co. and Montgomery Ward could hardly have been more different: their whole business model depended on repeat sales to regular customers.

Positively the last thing they would want would be for somebody to be hurt by their goods and blame them.  They simply could not operate like Ebenezer Scrooge or a slick shyster; they had to be both trustworthy and trusted.

Well into the 20th century, however, most purchases were from no-names and smaller firms, many of whom did indeed revel in abusive practices.  The early Progressives and muckrakers were driven by the urgent and pressing need for government intervention in most everything; from Upton Sinclair whose book The Jungle led to federal regulation of slaughterhouses to union pressure for minimum wage and child-labor laws, the thicket of regulation grew and grew.

Did it stop some things that seriously needed to get stopped?  Yes, most certainly, but public awareness and the growing reach of large corporations with reputations worth preserving would have eventually done the job without government regulation.

Somebody Else's Problem

The wider and deeper the government regulations grew, however, the more they changed society's expectations.  Originally, the most people expected from their government was to prosecute obvious frauds and thieves: if you sold a bottle of medicine that in fact contained only dirty water, you could expect the sheriff to come after you.  If your legitimate machine happened to injure a user, well, it was the user's responsibility not to get caught in the gears; no crime or real legal issues here!

With the coming of regulation and the camp-following trial lawyers, all that flipped around.  Today, we expect everything to be 100% safe in every possible way.  Whenever anyone is injured doing or using anything whatsoever, a lawsuit instantly follows.

Whole books have been written about lawsuits and regulations that defy common sense - suits for being burned by hot coffee that was, in fact, hot; requirements for stickers inside car wheel wells saying "Don't stick your head in here" that failed to prevent a lawsuit by an illiterate person who stuck their head in there and got hurt; and let's not forget lawsuits by perforated burglars against gun manufacturers whose product worked exactly as intended in the hands of a homeowner.

Do we think that Toyota wants to kill its customers?  Most people who own a Toyota eventually wear it out and buy... another Toyota.  A customer consumed in a fiery crash is not going to be buying another car of any kind and his friends and relations certainly aren't going to buy the same make as fried their late lamented buddy.

Consider the Ford Pinto, a car that hasn't been manufactured in decades but which is still legendary for exploding in fender-benders and incinerating its occupants.  Thanks to Ralph Nader, all America believed Ford's executives to be devils who cared nothing for their customers and were unwilling to pay $11 for plastic padding to prevent horrific wrecks despite the fact that a number of Ford's people who designed the car bought it for their sons and daughters.

Those executives are long retired if not dead, but the opprobrium lived on for years.  It was only beginning to dissipate when Ford Explorers started rolling over; we still don't know whether it was the fault of Ford who made the cars or of Firestone who made the tires.  Maybe it was just some weird combination of flaws in both parts.  Anyway, this time Ford moved heaven and earth to make the problem go away by replacing all the tires at vast expense.

In what way did government bureaucrats help Ford drivers?  They didn't in the case of the Pinto, and regulations were tightened.  When the Ford Explorer came around... again, the bureaucrats served no useful purpose because Ford wanted to fix the problem regardless of cost.

Bureaucrats Are Angels?

Without actually saying so, there is an implicit assumption that whereas corporations will always try to save a buck even if it kills customers, government bureaucrats will always protect the public.  Why do we believe this?

As we've seen, the last thing a company needs is bad press; does anybody seriously think that Toyota is not doing everything within its power to figure out what if anything is wrong with its cars, and fix it ASAP?  Does anybody seriously think that Ford knew about a killer defect in its Explorers and did nothing?

On the other hand, we know that bureaucrats care only about checking boxes, and rarely about reality.  An internal Toyota memo to high executives pointed out that

[The Department of Transportation and National Highway Transportation Safety Administration's] new team has less understanding of engineering issues and are primarily focused on legal issues.

Where does bureaucratic protection lead?  Last spring, a long-range Air France passenger jet vanished in the South Atlantic in bad weather, killing all on board.  While most of the plane, including the black boxes, is at the bottom of the ocean and we may never know for sure what caused the crash, evidence points to a sensor failure leading to a computer shutdown which left the pilots unable to control the plane.

How could this happen?  Don't government regulators have all sorts of tests required for aircraft manufacturing, maintenance, and operations?  Indeed they do, and regulations about airplanes are probably more strict than in any other line of business.

Air France is no Third World fly-by-night operation; it has some of the most respected pilots and mechanics in the world.  They were in strictest compliance with all applicable regulations - yet the plane still crashed.  Why?

According to the German newspaper Der Spiegel:

Aerospace experts have long known how dangerous it can be if the airspeed indicators fail because the pitot tubes ice up... the problem with the airspeed indicators lies far deeper. To this day, the relevant licensing bodies still only test pitot tubes down to temperatures of minus 40 degrees Celsius (minus 40 degrees Fahrenheit) and an altitude of about 9,000 meters (30,000 feet). These completely antiquated specifications date back to 1947 -- before the introduction of jet planes. [emphasis added]

Doesn't failure to update specifications as aircraft fly ever higher sound exactly like the supposed willful negligence of Ford Pinto executives?  Airbus and Air France aren't committing negligence - it's the regulatory bureaucrats who're asleep on the job.  Yet where's the outrage, the multi-million-dollar lawsuits, the calls for prison terms?

Lawsuit Protection...

Big business learned from the Ford Pinto affair that you don't want to let your customers be barbecued, but that's not the only lesson they took home.  Ralph Nader didn't merely call for punishment for Ford's supposed misdeeds; he demanded intrusive and comprehensive government regulation.

For a while, the industry resisted, but then they realized an important truth: Being in compliance with all government laws and safety regulations is a defense in court.

If we knew that a company intentionally tested anything relating to modern aircraft based on 1947 specifications, they'd be instantly sued when someone got hurt.  Yet it's not a private company that made this mistake, it's the government!

It really does look like Airbus crossed every T and dotted every I regarding the applicable regulations.  Nothing was hidden - previous problems with aircraft pitot tubes were reported to the national authorities and duly filed.  Both the aircraft manufacturers and the pitot tube makers were researching potential fixes and alternatives and had sent around suggested improvements for comments.

The one great gaping flaw was in the regulatory rules... and you can't sue government regulators for negligence.  Sure, Air France and Airbus are going to pay some penalty, but nothing like as bad if they'd such an egregious mistake themselves.  They are hiding behind regulatory incompetence and are thus partially protected from a devastating lawsuit.

Is it any wonder, then, that big business positively welcomes government regulation?  As long as you are scrupulously obeying the regulator, it doesn't matter what bad things happen - you won't have to carry much of the can.

As nice as this is for companies, it is very bad for everybody else.  Most businesses and businessmen want to make an honest dollar by selling legitimately useful stuff - but not all.  For those bad apples like Enron and Bernie Madoff, we need to be able to sue them, to make them repay fraudulently stolen funds, even put them in jail.

It doesn't happen often, but white-collar criminals do go to jail.  When was the last time you heard of a bureaucrat going to jail because of outrageous negligence or incompetence?

Most of the time, their "punishment" is a bigger budget; being a government employee means never getting fired no matter how worthless you are.  What we need is more responsibility and more people held accountable for mistakes, not fewer.

...But Not Anymore!

When you consider the relatively new ability to be sued for Anything Bad That Happens and also the ability to hide behind government regulations, it suddenly makes sense why businesses don't mind the overweening growth of government: in effect, they're buying protection from trial lawyers and passing the cost on in the form of higher prices.

This unholy alliance may finally be breaking down: a recent Supreme Court decision ruled that even the most scrupulous obedience to government regulations is no defense against a lawsuit.  Wyeth Pharmaceuticals vs Levine found a drug company liable for harm to a patient even though they could not have done anything differently from what they did without breaking the law - they had wanted to put bigger warning labels on the package and the FDA wouldn't let them.  Talk about a Catch-22!

For many years, despite the constant peddling of outdated stereotypes to the contrary, big business has predominantly supported Democrats.  The devil's bargain of protection money having been broken, perhaps this will change.

When the Mafia comes knocking at your shop door demanding protection money, most shopowners reluctantly pay.  If the Mafia takes the money and shoots up the store anyway, however, the shopkeeper isn't going to give them any more.  Maybe he'll invest in an AK-47 and a bulletproof vest instead.

Fortunately, we don't have to actually shoot our intrusive, useless, and greedy bureaucrats the way you do Mafia thugs.  We can simply fire them and their Democratic godfathers this November.

Perhaps, finally, big business will switch sides and fight on the side of freedom, having been betrayed one too many times.

Petrarch is a contributing editor for Scragged.  Read other articles by Petrarch or other articles on Bureaucracy.
Reader Comments
Excellent article!!
March 23, 2010 6:56 AM
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