Some 187 miles and 103 years separate the two West Virginia mining towns of Monongah and Montcoal. They are linked by deadly methane gas explosions highlighting economic issues that don’t go away. What role, if any, should government take in regulating safety in dangerous industries like coal mining? And can government regulation be effective in reducing death and injury?
Over the 20th century, there was a broad consensus, if not universal agreement, that government should regulate mine safety. But in recent years, increasing numbers of conservatives describe the Progressive Era — during which Republicans like Teddy Roosevelt favored government regulation of some business activities — as the beginning of a disastrous slide toward intrusive big government. They want to drum TR out of the Republican Party posthumously precisely because he favored policies such as mine safety regulation. So what do economists think about all of this?
For a long time, many argued that government action wasn’t needed because market forces led to a societal optimum. Yes, coal mining was dangerous, as were farming, forestry and many other occupations. But it was a free country. Workers could choose whether or not to take any job.
Employers had to pay higher wages to get workers for dangerous jobs, a phenomenon that became known as “compensating differentials.” These higher payroll costs gave business owners an incentive to spend money on new equipment or procedures to reduce the danger of the job and hence the extra pay needed to draw workers from less-dangerous alternatives.
If government interfered by mandating specific technology or operating methods, it would increase costs. The price of the product would be driven up and less would be sold. This would lead to layoffs. Workers would lose jobs. And since their showing up at the mine proved they were being compensated for any dangers, interference in the process thus would make them worse off.
Yes, some would die or be injured, but that was a risk free individuals decided to take. Zero mining deaths would be as economically inefficient as requiring zero emissions from any vehicle or power plant today.
Some see this as heartless, but advocates asserted it was little different from opting to travel in cars or planes. We all know that tens of thousands of people are killed or injured in car and plane accidents each year. Yet most of us still choose to use these machines. If government banned cars or planes or required them to be made in such a way that no one could be killed, society would be worse off.
This laissez-faire view was accepted wisdom for many at the dawn of the 20th century. But whenever a large disaster occurred, such as the methane explosion that killed 362 miners in Monongah in December 1907, many others thought government ought to do something to make mining safer.
The history of mine safety regulation is long and complex. It started well before the Monongah explosion and Teddy Roosevelt’s presidency. But that disaster renewed impetus for federal safety regulation. And Roosevelt’s “progressivism,” already demonstrated with the 1906 Pure Food and Drug Act, contributed to the establishment of the Bureau of Mines a year after he left office.
The new bureau had limited enforcement power for decades, but mining deaths slowly dropped from more than 2,000 a year before 1910 to a few hundred by the 1940s. There still were disasters, however. It was only after 111 men died in Centralia, Ill., in 1947 and another 119 in West Frankfort, Ill., 50 miles to the southeast, four years later, that the Bureau of Mines gained any real power.
Nevertheless, as critics of government regulation point out, miners still die. Regulators cited the Upper Big Branch Mine at Montcoal hundreds of times in recent years but there still was an explosion. Moreover, safety measures make underground mining more expensive and thus promote alternatives such as “mountaintop removal” with negative environmental consequences.
Virtually all economists acknowledge these tradeoffs. Tradeoffs are what economics is all about. Yet most favor some degree of government action in the area of occupational safety and health.
The arguments against government regulation parallel those by Milton Friedman in arguing that government regulation of food and drug safety makes society worse off.
And they depend on the same assumption that all the necessary conditions for free market efficiency exist in the real world. There must be many people on each side, mine owners versus miners or drug manufacturers versus consumers. All must have very good information about all of the relevant variables, including levels of danger in mines or of adverse effects for drugs. There must be clearly defined legal rights and responsibilities and no transaction costs for any who are hurt to secure compensation from those causing the harm. There must be no external effects that harm or help any third party.
Most of those conditions don’t apply or apply very imperfectly in both drugs and mining. So there is “market failure.” But before government action is justified, there must be some indication that regulation can be effective and bring about improvements the worth of which exceeds the costs. I, and many other economists, think that is true and is responsible for the difference between China’s 2,600 mining deaths in 2009 versus an average of less than 30 per year in our country since 2005. But many conservatives increasingly challenge that and argue we should return to the unregulated era before 1900.
© 2010 Edward Lotterman
Chanarambie Consulting, Inc.