Sunday, April 7, 2019
The Danger Of Corporate Self-Regulation
written 31 March 2019
published 7 April 2019
Advocates of the "free market" believe that personal selfishness will assure that no "bad" things will happen. This magical thinking ignores the flawed economics of externalized costs. Since money is the only way to keep score in capitalism, avoiding a cost increases my gain. I can reduce costs by throwing my trash into your backyard, forcing you to pay for cleanup. While this is a simple example, the same process takes place on more subtle levels.
For instance, when corn is stored, it attracts rodents, which poop in the corn. It costs money to make corn storage completely rodent proof, reducing profits, even though nobody wants to eat rodent excrement in their cornflakes. Rather than spend the money on rodent control, corporations convince the government to regulate how much poop should be allowed, defining a "safe" level. A board is appointed to set regulations and inspections, assuring no more than the allowed level of feces shows up in our cornflakes. Industry then lobbies to have a say in who gets appointed to the board. This is the essence of "regulatory capture", where industry protects profits by influencing the selection of the regulators and inspectors. As a bonus, since the regulations now define a "safe" level, there is no reason to disclose the fact there is rodent excrement in our food. What we don't know can't hurt corporate profits.
While rodent dung in my breakfast is unpleasant to think about, it probably won't kill me. However, regulatory capture affects more lethal issues, such as chemical contamination of our air, water and soil, or structural design of infrastructure and buildings. History has shown the selfishness fundamental to capitalist theory can lead to critical cost cutting with lethal consequences. We are currently witnessing a new aspect to this problem. In addition to decades of "free market" pressure to eliminate regulations, there has been concerted effort to underfund the agencies tasked with enforcing what regulations remain.
Consider the case of the recent crash of two Boeing 737 Max 8, which killed 346 people. To compete against the new Airbus A320, Boeing decided to upgrade the 737, first introduced in 1967, rather than incurring the time and expense required to design an entirely new plane. However, installing new energy efficient engines required shifting the wings forward, which changed the flight characteristics. Being a modern plane, it is very computer intensive and required extensive software development as well.
The Federal Aviation Administration (FAA) is tasked with regulating the aircraft industry to insure aircraft safety. However, repeated Republican Congressional budget cuts to the agency mean there aren't enough inspectors to handle the load. The FAA trusted Boeing to be thorough in their own inspection and "self-regulate". While no Boeing engineer or inspector would want to risk the company by putting out a flawed product, there is an inherent conflict between safety and costs. For instance, the time frame generated by management sales goals is different from the time needed for complete testing. Crash investigation is ongoing, but Boeing has already released a software upgrade, suggesting problems there, and the FCC is re-examining their "self-regulation" policy.
A similar move to allow "self-regulation" in the nuclear power industry is an even bigger threat to society. There are currently 99 reactors operating in the US. Because the US was the first to build nuclear reactors, our fleet is aging. All but five are more than 30 years old, and 49 are more than 40 years old, operating beyond their original design life. Prolonged exposure to extreme radioactivity causes embrittlement, a weakening of materials, requiring more frequent inspections of older reactors to insure safety. The Nuclear Regulatory Commission (NRC) is tasked with regulating nuclear power, but budget cuts have reduced their inspectors as well. Because nuclear power is so expensive, it is no longer competitive in the marketplace and the industry is in economic distress. To save money, the industry is asking that the NRC cut back on the number of formal inspections required, and to trust operators to do their own inspections. Will it take a Fukushima style reactor failure to get NRC attention?
For corporate profits, self-regulation is even better than regulatory capture. What could possibly go wrong?