Safety, business costs and regulation

On the 28 April edition of the ABC TV show, Insiders, Gerard Henderson displayed a common misunderstanding about the role and existence of regulations.  In discussing the childcare industry Henderson,  Executive Director of the Sydney Institute, said that regulations always increase business costs, as if regulations are the start of a process when regulations are almost always a reaction to a hazard, an abuse, an exploitation or a risk.

Business leaders seem to be incapable of understanding that they have the  power to reduce what they see as OHS red tape by changing their behaviours, perhaps by embracing and implementing safety leadership.

Many politicians and commentators have linked recent factory explosions and collapses around the World Day for Safety and Health at Work on 28 April.  As quoted in The Guardian, Tom O’Connor, executive director of National COSH.

“But as companies decry regulations and emphasize profits over safety, workers pay the ultimate price…”

O’Connor could easily have replaced “profits” with “productivity” but he does link worker welfare to the arguments against red tape and regulations.

In 2011 Fiona Haines explored this paradox of regulation in a book of that title.  Her analysis

“…suggests the limited effectiveness of regulation is caused by two different factors. First, regulation as the quintessential instrumental form of policymaking is both politically and technically attractive, but can be thwarted when the risk to be reduced is not amenable to narrow, targeted interventions.  Nonetheless, regulation may remain popular as it allows claims that progress has been made and that, this time, the lessons from tragedy have been learnt.   Secondly, the analysis here suggests that even when regulation can be effective in avoiding catastrophe it needs sufficient political support to ensure its implementation but not overweening political intervention that prevents the regulator framing the regime in the optimal direction.” (page 3)

On Haines first point, it is suggested that work stress and workplace bullying may be one of those hazards that is not “amenable to narrow, targeted interventions.”

On her second point it is clear that regulation may be created as a politically attractive “fix”, particularly after a disaster, but that the aim of the regulation will not be realised without ongoing political will.  It is perhaps in this context that one can argue that workplace safety regulation always has a political or industrial relations context and to control or eliminate a hazard successfully requires safety professionals and OHS regulators to understanding that context.

Henderson may argue that workplace safety will always have an economic context as well as political or industrial and this is acknowledged by most safety professionals but the size and type of economic impact is not always a burden or cost as Henderson would say.  I would argue that seeing OHS as an additional business cost is a fundamental misunderstanding of basic business management.

Safety is only an additional cost if that unavoidable cost was not considered in the earliest steps of developing a business management plan or undertaking proper due diligence.  The cost of safety is a cost of operation and can be quantified in operational estimates of productivity and output  at the business design stage but business is usually seen in terms of productive quantities and not the quality of production.  Safety management and safety regulations must apply a broader pool of concerns, particularly the human element.

Haines writes that

“To be successful, regulation must embrace actuarial, sociocultural and political risk reduction through a common regulatory project.” (Page 7)

All these elements must be considered and balanced as well as they can but whether this is dependent on a “common regulatory project” is debatable.  Such a project encourages the dominance of regulation as a political and social tool. More sustainable change may come from the re-emphasis of social values, recently mentioned by Minister Bill Shorten in Brisbane and again, today, in Canberra, those of dignity, trust and respect.

Kevin Jones

reservoir, victoria, australia

10 thoughts on “Safety, business costs and regulation”

  1. there is a clear mind set operating here (apart from profit at all cost which is the primary driver) and that is the lack of a mindset to fully understand or even grasp the essentials that in today\’s savvy, aware and understanding society and with a range of global issues being pushed upon everyone of us by panicky governments for altruistic reasons or for thier own misguided sets of values and retaining their elected positions, companies who want to continue to survive, operate or even make a profit in todays world, need to wake up and shape up. Sure their shareholders are an improtant group to deliver a profit to, but you wont get any profit if everyone wakes up and stops buing your product or service. The last 5-6 years in teh childcare industry has demonstrated corporate greed and successive failings on even basic safety issues resulting in many of those groups or organisations disappearing from the land scape. If you want to keep uyour head in the sand that\’s fine, but dont try and impose your outdated self serviing views on others. I am reminded of teh famouse statement of the president of Digital Corpn – who used to manufacture computers. He said \”I can think of no reason why anyone would want to have a computer in their home.\” Course Digital dont exist anymore and they had previously been a Fortine 500 company. Ouch!!!!!

  2. Those who think implementation of regulations adds to cost should go through history of legislations. Money spent will be an added cost, when safety is not thought off during the design stage. Workers are not some lifeless creatures to put them at risk. If you do not accept some substandard item/policy/etc for your self, then you don\’t have any right to inflict on others.
    The benefits of implementing regulations are often not seen by the managements. Absence of safety measures will reflect soon in the organization and if measures are not taken, it will sink. If immediate profits are the target, then closure of the organization will be the destination. In any manner, workers only will suffer.
    Absence of rules causes chaos in society. If there exists order in the civil society means it is because of rules and regulations and not because of voluntary actions. The same is applicable for manufacturing facilities also.

  3. Graham Dent, I appreciate the perspective, echoing Kevin\’s, that Regulation is reactive to market failures due to the desire to be Piratical (If you\’ll forgive my paraphrase – as Jack Sparrow quotes the Pirates Code: \’Take what you can; give nothing back.\’) such philosophy is at the heart of cost externalisation.

    One classic example that extends your shipping analogy is the development of the Plimsoll Line. A multi-year fight was had over this, stemming from the huge loss of life and tonnage due to overloading (yet century\’s later, we hear every year of ferry sinkings throughout the world were 100\’s die due to overloading in unregulated or non-enforced jurisdictions).

    The fact that it took nearly half a century for the US regulators to ban mercury from use in the hat & felting industry demonstrates clearly that, absent regulation, the market will steadfastly refuse to internalise those costs and \’do the right thing\’ by the non-corporate stakeholders.

    Riots and protests around the world stopping mines that are perceived to threaten water-tables and down-stream communities are indicative of the persistent failures of operators to manage these issues, then the Henderson\’s of this world lament the costs to business of complying with the subsequently imposed regulations – regulations that would not exist if the business operators took a \’Common Good\’ approach to minimising harm in the first place.

  4. People who think they know how business should operate but are not actively involved at the coal face do have that common misconception. However safety regulation does not increase costs.
    The real problem is that too many organisations either ignore their obligations that are clearly enshrined in law and even UN conventions, in pursuit of lowest cost and safety is always the brunt or excuse, rather than realising safety and quality need to be going hand in hand. The financial pie slice is of a finite size so link quality and safety and demonstrate that what is proposed, implemented and followed through, can achieve sustainable benefits for the rest of the organisation. Otherwise you wont get you budget to do it, but when it does come in reducing costs everyone will be amazed. You save one incident from occurring and you have saved multiple hours of work and form filling and investigation. You save one accident or injury and you have saved thousands of dollars in associated ongoing costs and it is not enough to say you have w/c insurance – that comes at a cost as well and accidents will increase your premiums and ratings.
    It\’s time people woke up and did it right the first time.

  5. the community pays, and until they are tired of the cost they are forced to bear as a society businesses will still \”get away\” with this mentality

  6. In relation to the statement that \”regulations always increase business costs\”, first, I think a proper analysis will find that statement a vast generalisation and incorrect in many instances. I wonder if Henderson has done the sums on the cost to BP of the Alaska pipeline, Texas Refinery and Deepwater Horizon … the cost of non-compliance in just 3 instances (and there are others), against the cost of compliance to BP? How many Bhopals and other disasters have been avoided by regulatory controls – however inadequate they may be in some areas. What value does Henderson\’s economic analysis place on the 325 and climbing death toll in the clothing building collapse in Bangladesh? An example of an area of poor regulatory controls in procurement practices.

    But for the moment I\’d like to briefly make a second point.

    Sound regulations are really about transferring costs. In the absence of regulations many businesses reap the profits while society at large carries the costs. Big brand names used the clothing supplier in Bangladesh – an increase in regulations would either increase the end price we pay for Mango clothes at David Jones, or decrease the profit margin … does Henderson factor in the value of life in a developing economy or is that an \”externality\” or what the military euphemistically call when a missile hits a civilian target \”collateral damage\”.

    Lack of environmental regulation sees atmospheric contamination and vast areas of land and sea polluted at a major cost to society and many individuals who may suffer serious health effects or even die as a consequence, let alone the impact on ecosystems.

    OHS regulations, workers comp transfer the cost of those who might be or are killed, maimed or made seriously ill in PART, but not fully, back to the industry and individual businesses who give rise to the death, injury or illness.

    Product liability laws, drug approvals, tobacco regulation .. and moving away from health related areas to financial markets – its all about trying to move some of the costs businesses in these areas impose on others, back to those businesses.

    I for one get tired of the bumper sticker slogans put forward by so many supposed industry \”thought leaders\” and \”think tanks\” who fail to engage in the real issues underlying regulation.

    Would it improve business productivity to deregulate our highways, remove traffic lights and speed limits? That surely would speed up the transport sector which is a vital part of business supply chains and productivity. Or would it cause chaos and grid lock?

    Lets stop inspecting and registering ships – let rust buckets carry our cargoes around the world or to our shores. Surely the cost savings would far outweigh the regular sinking of ships which would probably ensue and although there would no doubt be a tragic loss of life (probably from developing nations, but at least we gave them jobs – another deregulation mantra) we cannot allow a nanny state mentality to destroy business productivity … surely ?

    I am sure that despite the upfront \”cost\” of implementing quality management systems in a business Henderson would see the economic value of this. Why can\’t Henderson and his ilk see making a quality product without killing or maiming its makers, or destroying the surrounding ecosystem, as part of the quality process ? I imagine because he thinks someone else should pay that bill.

    Thanks for your thought provoking article Kevin.

    Regards, Graham Dent

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