Privatization for Safety's Sake

Job providers have powerful incentives to protect their workers.
Photo courtesy of The Dow Chemical Company.

A quarter century of government regulation covering workplace safety may make privatizing industrial safety seem unnecessary, until one considers that the pace of improvement in workplace death rates has not increased significantly since the Federal Occupational Health and Safety Administration (OSHA) was created in 1971.

New worker protection laws and regulations are enacted frequently, but their claims of effectiveness are seldom challenged. An alternative—private, voluntary safety efforts—is at least as effective, and less costly than government mandates.

New worker protection laws and regulations are enacted frequently, but their claims of effectiveness are seldom challenged.

OSHA rules pervade American business. Many job providers, especially small and midsize businesses, complain that compliance paperwork stifles productivity and has little bearing on workplace safety. At least 25% of all OSHA violations are due to paperwork errors, not to creating unsafe working conditions, according to Myths & Consequences: Paying for the Use of Myths and Distortions by Anti-Regulatory Zealots, a 1994 publication of Citizens for Sensible Safeguards.

The cost of complying with OSHA regulatory demands is much higher than previous reports have estimated. Harvey S. James of the Center for the Study of American Business calculated the total annual cost of OSHA compliance for 1993 to be at least $33.5 billion. Job providers must pass along that cost—more than $100 for every consumer in the country—even though the benefit to worker safety is quite unclear.

OSHA proponents deny that the agency is costly and argue that it significantly reduces workplace injury and death. They argue that private medical insurance, worker's compensation and tort law fail to adequately protect workers because they address work-related injuries and deaths only after accidents occur. This reasoning ignores marketplace incentives that reward employers who protect their workers.

Job providers are acutely aware of costly medical and worker's compensation premiums, paid sick-time, and tort lawsuits. Employers who want to avoid these costs have built-in financial incentives to protect their workers from injury. Many businesses have injury-prevention programs that go above and beyond OSHA demands. They focus on practices that protect workers—and the company—rather than merely satisfy government overseers. These private, voluntary safety programs demonstrate that employers know they benefit from a safe workplace.

Workplace safety has improved since OSHA was created, but it appears to be the continuation of a trend beginning in the late 1930s, over 30 years before OSHA. Despite a quarter century of trying to make OSHA more effective with added regulations and streamlined procedures, workplace safety improvement has remained fairly constant. It is misleading to claim that this indicates the agency's success. This trend predates the agency by longer than OSHA has existed (see graph). OSHA appears to have had no measurable positive effect on worker safety.

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OSHA has failed to increase the pace of improvement in workplace death rates.

OSHA has had negative effects, however. Compliance diverts from more productive pursuits: the time and effort of talented people in both the agency and in businesses. Instead of addressing safety problems with their employer, employees file OSHA complaints; instead of investing money in safer work sites, employers spend time and money complying with OSHA demands.

Regulatory privatization avoids many shortcomings of government mandates. Laws and regulations tend to provide one-size-fits-all solutions to problems. The marketplace rewards those who customize solutions to best solve their problems, and it penalizes those who do not—all without government involvement

One example of marketplace provision of public safety comes from Scottsdale, Arizona. Across the nation, governments provide municipal fire protection, including fire suppression, prevention, and code enforcement. In Scottsdale, however, citizens are protected by the private fire specialists of Rural/Metro, a private, for-profit company. Rural/Metro grew with the city and has become an integral part of the community's public safety apparatus. According to the Reason Foundation, Rural/Metro provides the same services that municipal fire specialists perform, but at just over half the cost.

Job providers cannot afford to view workplace safety as trivial. Combining the cost of legal and insurance fees, the impact on worker productivity, and the effect on attracting the best employees, businesses and workers have more personal incentive to improve safety than do politicians and regulators.

Job providers have powerful incentives to protect their workers.

Regulatory privatization is a more effective and less costly alternative to OSHA. Privatization is, according to Robert Poole of the Reason Foundation, the "shift of functions and responsibilities, in whole or in part, from the public-sector to the private-sector. The result in most cases, can be described as a public-private partnership." Business owners, employees, unions, insurance carriers, and associations should challenge the idea that only government has the incentive and the means to protect workers.