Health and Safety Standards in a Free Market

In a free-market economy, what health standards are offered to consumers and employees?

The free-market's ability to protect health and safety is one of the strongest reasons to endorse markets over government.

Imagine that you own a firm that produces, say, electric kitchen appliances. Your income rises with every increase in the number of kitchen appliances you sell at prices that are above your costs of production. Unfortunately for you--but fortunately for consumers--you face competition from other appliance producers. If consumers don't like your appliances, or if you insist on charging prices that are too much higher than the prices charged by your competitors, consumers will buy their appliances from your competitors. To keep business--to assure yourself a steady income--you must please consumers. It may seem counterintuitive, but your own self-interest demands that you please others. If you don't produce good products and sell them at reasonable prices, you go bankrupt.

Now consumers aren't stupid. Consumers know that they don't want their fingers chopped off by defective food processors or their houses burned down by toasters with screwed-up electrical wiring. Suppose you, as an appliance manufacturer, greedily decide to skimp on inspecting your appliances before they are shipped to retailers. You think to yourself "I'll save $100,000 a year by firing my two quality-control inspectors. I'll pocket this money and consumers will never know the difference."

So you skimp on quality control and a consumer who purchases one of your toasters burns his house down because of faulty electrical wiring in the toaster he bought from you. What happens then?

First of all, you can be sued in court by this fellow whose house is now a cinder block. If he can prove that your toaster really was defective, you will pay far more than $100,000 in court costs and damages. But more importantly, even if you can't be sued, word soon gets out that your toasters are dangerous. If no one else warns consumers of your unsafe products, your competitors have every incentive to advertise that your toasters are dangerous. Consumers will obviously be less likely to buy your products. You will suffer great personal losses of wealth as a consequence of losing this business.

Businesses have incentives to provide safe products because consumers demand safe products. If you know of any industry where firms stubbornly refuse to provide the amount of safety that consumers demand, then you have a golden opportunity to make millions of dollars. All you have to do is to start your own firm in that industry and make a big deal in your advertising of how your products are much safer than those offered by your competitors. Consumers will flock to you and make you rich.

The same holds true for workplace safety. Back in 1975, when I was 17 years old, I worked a summer job on a tomato farm. The job stunk. It was dirty, and my fellow workers were obnoxious and always picking fights with me. It wasn't a very safe workplace. You know what I did? I quit. I found employment elsewhere (bagging groceries at a supermarket) that was more pleasant. Employers who insist on keeping their workplaces unusually dangerous will lose their employees to other employers. (Incidentally, the supermarket where I bagged groceries is still in business. The tomato farm went bankrupt in the late 1970s. Bankruptcy is the inevitable price that is paid by any business that stupidly refuses to offer safe products and safe working conditions.)

Of course, some jobs are inherently more dangerous than other jobs. It is impossible for the most saintly of construction firms to make the job of high-rise construction worker as safe as is the job of someone working in a florist shop. But you know what? Statistics show that people who work at more dangerous jobs get paid extra money to compensate them for working at such jobs. And no one is forced to work at especially dangerous jobs. The market gives people choices -- it says "we have this job for you, but it's kind of dangerous; however, we'll pay you a bit more to make up for the risk." The person seeking employment is free to accept or to reject that job.

Just as in the case of appliance manufacturers, if you happen to know of an industry in which each firm keeps its workplace unnecessarily dangerous, you can become a millionaire very quickly. Just open up a firm in competition with the existing firms in that industry, and then advertise to all the workers that you are paying salaries the same as are paid by the other firms in that industry, but that your workplace is much safer and more pleasant. Don't you think that employees, upon learning of your offer, would quit their jobs with your competitors and sign on with you? You bet they would! If your competitors continued to refuse to make their workplaces safer, you'd run them out of business merely by taking away their employees.

The point is that competition among firms in free markets keeps products and workplaces safe. Now it's true that no product or workplace is 100% safe. It's impossible in this imperfect world to eliminate all risks. But the free market does a remarkably good job of reducing risk to acceptable levels, making life much more pleasant and safe for everyone.

One of my favorite books is written by a Marxist historian by the name of Fernand Braudel. The title of the book is The Structure of Everyday Lives. This book documents the way the typical European lived from the 1400s through the 1700s. It was ghastly! Killer diseases weren't news back then: they were too common to be news. So were famines. For example, during one winter in the late 1680s, fully one-third of the entire population of Finland starved to death!

People worked long and very hard hours on farms, wallowing for much of the day in cattle, pig, sheep, and chicken waste. Soap was a luxury. Of course, there was no running water--and definitely no heated water. So the typical European resident for most of history never bathed from September or October through April or May: the creeks where they bathed were either too cold or else completely frozen during the late fall, winter, and early spring.

Can you imagine not bathing for six months? Had you lived back then, you and everyone you knew would have been constantly filthy, with lice in your hair and oozing sores all over your body. Because of lack of dentistry, your teeth would all fall out by the time you reached the age of 40--if you were lucky enough to live that long, since life expectancy back then was about half of what it is today. In fact, if you survived childhood you were lucky, because infant mortality was very high. As recently as 1750, close to one in every four babies born in Europe died before reaching its first birthday.

I could go on and on about how horrible life was before the great expansion of capitalism created such widespread and abundant wealth that the poorest American today is vastly wealthier than the wealthy nobility of just a few hundred years ago.

Capitalism--the free market based on voluntarily exchangeable private property--promotes safety and health not only by giving business people powerful incentives to produce safe products and workplaces, but also by producing such a great abundance of wealth for everyone that the ordinary person in a market economy can easily afford to buy sanitation, fresh foods, health care and medicines, and all of the other things that enable us to live safely and comfortably.

Make no mistake that all of the great improvements in our living standards (and life expectancy) that occurred during the past 200 years occurred because of free-market capitalism.

In addition to the Braudel book, another good book chock-full of facts about how the free market increases safety and health is The State of Humanity by Julian L. Simon. Professor Simon teaches at the University of Maryland.