A number of recent incidents on the food and/or consumer safety front have been in the news recently, either here or in the traditional media (Salmonella tomatoes, e-coli beef, mad cow disease, downer cows, the spinach thing, Exxon oil spill, "murder by spreadsheet" in the health care industry, etc.). While each of these individual problems have their own intricate proximate causes, they all have a linking thread that goes back to a core economic inefficiency in the American system. In short, structural factors make cutting corners a "good idea" for companies when they engage in rational cost-benefit analysis.
This diary was inspired by learning from a friend of mine with knowledge of the food processing industry that the cause of the salmonella in tomatoes thing was actually a well known problem, with a simple solution, that is, nonetheless, seldom undertaken.
Apparently, when fruits and vegetables are being transported and/or processed in a factory, they are often transported by water chute. If you've ever seen one of those shows on Discovery where they show how food is handled, you've probably seen them. The general idea is that if you were to move the fruit down a conveyor belt, it would get bruised and battered (but by no means beaten), so instead, they are put in a chute full of water, and just washed along that way. Great, clever solution. A+ for ingenuity.
The problem is, these chutes have grooves in them and suchnot that can harbor bacteria. Such as e-coli or salmonella, or any number of other nasty microorganisms. So, occasionally they get dirty, contaminate some fruit, and there's a scare. Apparently cantaloupe melons are particularly vulnerable to this because of the texture and permeability of their rind. Who knew?
Anyways, there is apparently a simple solution to this; one that doesn't even need radical measures related to returning to organic practices or anything like that. You just shut down the processing occasionally and give these chutes a good scrubbing. Oddly enough, this doesn't happen.
Now, it is easy to look at this and blame this on laxity on the part of the FDA and the USDA. And that is certainly one problem, since the Bush Administration has cut back pretty severely on food safety inspections, as other diarists have noted.
But more than that, there's an economic inefficiency here that could (and perhaps should) be remedied absent any change in any regulation policy.
From the point of view of a cost-benefit analysis (CBA) perspective of a rational economic agent (i.e. a bean counter with no morals), the "right" amount of preventative care taken is the level that sets the cost of the prevention equal to the cost to the company of an "incident". For demonstration purposes, we'll take the tomato processor as an example.
So the cost of shutting down production and scrubbing the chutes is a fixed cost every so often. The cost to the company from having a salmonella outbreak comes from three possible sources: government fines, litigation, and changes in customer behavior after an outbreak.
Fines are generally pretty anemic. Changes in customer behavior are unpredictable, and generally short term. Regardless, I'll give the companies the benefit of the doubt and say that they account for those in their CBA.
But what about civil litigation? Here, I would argue, the CBA counts the cost to the company as being much lower than the costs imposed on society.
It is a principle of tort law (insofar as I know it; I'm an economist, not a lawyer by training), is that the victims should be compensated according to their own losses or suffering. Greater penalties than what restores the victims to wholeness (as best can be determined), it is (rightly) argued would be unjust because the punishment should fit the crime, and because to give higher rewards might generate what is called in economic terms "rent seeking behavior", which is to say "frivolous lawsuits" in the parlance of the right wing.
But litigation will almost never exact from companies the full measure of the costs that they have imposed on society.
First, many industry caused health problems are never recognized as such, or never prosecuted. Anyone who has ever gotten food poisoning but never sued falls under this category. Not that I'm suggesting that they should, but the fact that they don't means that their health problems are not counted as a risk of a cost to the company.
Second, bringing suit is an expensive proposition. Likely the only way it would be efficient for sufferers to sue would be in the form of a class action lawsuit. And those NEVER, EVER reach to cover the entire class of injured persons. (Update: as one responder has noted, apparently food borne illness suits cannot do the class action thing. This argument may still apply to other forms of corporate malfeasance.)
Third, the company might just win, even if they did in fact cause harm, if there is insufficient evidence that they did so negligently. Which, given that they control the information about the facilities, well, it's not certain that justice will always prevail.
Fourth, these cases are often settled out of court. This relates back to suing being an expensive proposition. Companies can often settle for far less than would be awarded in court, and that is another "inefficiency" in the system.
Fifth, and this one is important but often overlooked, litigation moves the time horizon for payment. Which is to say, in economic terms, $100 you have to pay next year is "less" than $100 you have to pay now. Preventive costs are costs you have to pay now. Penalties for harming the public can be held up in litigation for years. And that pushes down the "cost" of paying the penalty in the end.
So because of the way our legal system is set up, litigation will never cost companies as much as the costs they impose on society. This results in what is called an "externality" in economics. A cost that society bears instead of the economic agent.
But at the same time, we don't necessarily want to increase payment to the victims. It could cause the "rent seeking behavior" noted above, and that also imposes extra costs on society in terms of strain on our legal system.
Instead, my conclusion is that in civil cases where a company is found negligent in regards to public health, that they should pay more, perhaps equal to the amount paid to the victims, directly into the government coffers.
I see this as a win-win situation. Companies internalize more of the costs of harming the public welfare, while the government gains a direct, monetary, vested interest in making sure that these sorts of cases are prosecuted properly. That, and we finally find a way to pay for the maintainence our court system.
I'm aware that this "solution" may have problems of its own, but I'd be very interested in hearing what other people might have to say on the subject. Also, any lawyers who happen to read this who would like to weigh in and correct any mistakes I've made here, or expand on the analysis, I'd be happy to hear from.