Chris Berg, a guy who views deregulation the same way I view taxing things (pro), has an odd piece in The Drum this morning.
Berg argues that government regulation is to blame for the White Star Line’s decision to send the Titanic out to sea with too few life boats aboard. Specifically, he blames the mandated minimum number of life boats that large ships of the day were required to carry. The minimum was out-dated and didn’t scale up. Regulations required that ships in excess of 10 000 tonnes must carry a minimum of sixteen lifeboats, but there was no additional requirement for super-large ships.
The argument, if I understand it correctly, is that the shipowners (and, implicitly, the passengers) placed undue faith in the regulators, believing that they must be benevolent overseers whose judgement it wasn’t wise to question. As Berg puts it:
There was, simply, very little reason to question the Board of Trade’s wisdom about lifeboat requirements. Shipbuilders and operators thought the government was on top of it; that experts in the public service had rationally assessed the dangers of sea travel, and regulated accordingly. Otherwise why have the regulations at all?
So the argument is that the regulation wasn’t seen for what it was, a minimum number of lifeboats, but rather misinterpreted as a guideline for an appropriate number of lifeboats. If the Board of Trade was willing to let you set sail with sixteen lifeboats, why add a seventeenth?
His argument rests on the presumption that people will not take greater precautions than required by law. Is that really the case? The law requires that we wear seat belts in our cars, for example, but it doesn’t require that we have air bags. Most new cars nevertheless come equipped with air bags. Why, following Berg’s logic, don’t people accept the wise beneficence of regulators? Seat belts are required, but air bags are not; why, then, do car manufacturers sell cars equipped with air bags? Why do people pay a premium for those cars?
On Berg’s account, we should expect that the proportion of cars that have air bags would actually be higher without the seat belt rule. Unable to defer to the judgement of regulators, people would have to form their own judgements about the appropriate level of car safety. Is this really plausible? It’s not to me. When I look around, I don’t see people sticking to legal minima just because they’re there. If it makes sense to exceed a minimum requirement, people will generally do so. To believe otherwise is usually the preserve of people on the left of politics, who see a role for regulators when self-interest can’t be relied upon to generate an outcome that’s socially ideal.
There’s some truth to Berg’s argument.
California, for example, is an at-will state, where you can be made redundant and let go with no notice and no reason given. California also has no regulatory requirements on the minimum payout. Interestingly, the standard payouts provided by companies range from tiny (a couple of weeks at the low end) to huge (six to nine months, in some cases, and these can include medical benefits), with most providing at least a few months of salary.
Australia, on the other hand, has regulatory minimums. Most (if not all) companies see the minimum payout set by regulation as being the “appropriate” amount, and pay no more. I’ve even seen companies try to wrap up the minimum payout required by law in a Deed of Separation as they felt that “it’s a lot of money and more than generous”.
People know a lot about cars as they travel in them everyday, so they can form well balanced opinions on their own and buy accordingly. Advertising and word of mouth certainly helps the airbag sales here. The cost is also not prohibitive, so the technology is adopted. There are also a lot of car crashes, so when the risk is weighed up, people opt for the airbag.
I don’t think people in general (especially in 1912) traveled on large boats all the time, so it makes sense that they wouldn’t even question or think about the number of lifeboats. In this instance, it is reasonable for one to assume that there would be enough for all passengers (I would have if I was on the Titanic). Also, I don’t think there were a lot of large ships sinking all the time, so the risk of not having enough life boats was probably justified in people’s minds if they did think about it.
So no, people will not always just put up with the lowest standard set by regulators, but in the cases they do, it will probably be because they don’t know any better. In these cases they should be able to expect that the regulator has done a reasonable job of ensuring their safety.
Car manufacturers have to submit their products to ANCAP for safety testing. ANCAP star ratings are increasingly used by buyers as a differientiator. Many car companies with good ANCAP ratings use the star rating in their advertising. Vehicles with low ANCAP ratings will generally have a poorer sales record as compared to vehicles in the same class with a higher rating.
However, if you have ever travelled on the Spirit of Tasmania, have you ever questioned the number of lifeboats upon purchasing a ticket? Or even getting onboard? The Australian Maritime Safety Authority mandates this through making sure that the vessel is classified SOLAS by a classification agency. SOLAS or Safety of Life at Sea actually came about after the Titanic and is worldwide. SOLAS mandates numbers of positions on life rafts per people on board (I think around 150%).
So it would seem that relative experience with the purchased product dictates the level of regulation required. We assume that the ship is safe and that someone else with better knowledge has looked after it but we make sure our car is ourselves.
Hi Matt, that’s a fair paraphrase. But Titanic did go above and beyond the minimum. Safety was one of its selling points. We’ve all heard about the unique design which was meant to keep it afloat if it got into this sort of trouble. This is entirely consistent with your seatbelt/air bag observation.
And as I said in the piece, Titanic had four more lifeboats than required. So they did add a seventeenth, eighteenth etc. In the inquiry, the shipbuilders said this was standard for White Star: the firm was proud to throw a few more boats. But as far as I can tell, there’s no suggestion that they added more boats because they were second-guessing the regulator, just that they placed a premium on safety so liked to do a bit more than was required.
The car example is more a credit to advertising than to people’s desire to be safe.
Have a look at aviation. For many years, when it was a regulated (ie; low competition) industry, the laws for example Flight Attendants to seat ratios were seen as absolute minimums, aircraft were crewed with more than this most of the time. Since deregulation of the market competition has increased and profits have become more important and/or harder to achieve. So Flight Attendant numbers have been set at the minimums, airlines still describe their actions as ‘Worlds Best Practice’ though because Australian minimums are in line with ICAO (UN) minimums. Safety has been reduced for profits as minimums are seen targets rather than… minimums.
I don’t know if this is an argument for deregulation though.
Maybe I am unnecessarily cynical, but I believe White Star Line chose few boats because it was the number of boats needed to save the passengers that mattered, with a reasonable cost.
This makes perfect sense considering that (1) the cost was discussed (as Berg, to his credit, described in his text); (2) the level of casualties by passenger class shows that the less you paid, the more likely you died.
Whilst this may not be the case here, it’s true that having rule base regulation does have the drawback of having people meet a rule that does not cover the risk. It’s why Australia switched in every state to risk based regulation and, on the best evidence available, is why we are approximately twice as safe as comparable countries with largely ‘rule’ based legislation like the states. Does not necessarily make for a traditional ‘deregulation’ case…