The "Voluntary" Nature of Private Standards
Private standards are initially suspect because they appear to be "voluntary" in nature; at least they are frequently described that way. This label suggests the kind of decentralization intrinsic in market arrangements. In Albert O. Hirschman's useful terminology, it suggests the importance of "exit." As an organizing force, exit can precipitate a distinct logic of institutional control. In the area of education, for example, Terry Moe and John Chubb argue that public schools, which respond more to politics (voice) than markets (exit), are "quite literally at a systematic disadvantage" compared to their private counterparts. Because parents can remove their children from private schools, they argue, the teachers and administrators are more responsive than in the public sector.
Applied to the area of private safety standards, "exit" suggests a serious problem. To extend the analogy with education, manufacturers and other business interests apparently take the place of interested par-
ents as the primary influence on program administrators. These participants, seemingly concerned more about self-interest than about the interest of others, might "exit" if they do not approve of the regulatory product. In other words, they might refuse to participate in the process and boycott any standard developed in their absence. This suggests a bias in favor of the largest firms, those whose "exit" would most damage the enterprise.
A related hypothesis is that private standards-setters simply seek the "lowest common denominator." This downward pressure is thought to stem from rules requiring private standards to reflect a "consensus" of the participants. This does not usually mean formal unanimity, but the reality of private organizations is that "the fear of disintegration is frequently the decisive factor in the framing of governing institutions." The implication is that the demands of organizational maintenance generally override the possibility that private standards will be more stringent than desired by nearly all the participants. As a result, George Eads and Peter Reuter have hypothesized, private standards-setters probably "water down" their safety standards to appease potential dissenters.
These hypotheses seem most appropriate for trade associations, but they do not appear to fit a legion of other private standards-setters. Scores of so-called voluntary standards are actually coercive. They exist by demand on the part of more than just the regulated. Many of these standards have the force of law. UL standards, for example, are frequently incorporated into law through municipal building codes. Powerful nonlegal forces also compel compliance with various "voluntary" standards. Gas utilities generally will not install or service a gas appliance unless it is certified as complying with the safety standards of the American Gas Association (AGA) Laboratories. Major retailers such as J. C. Penney incorporate private safety standards into their purchase orders, helping to explain a popular observation by those familiar with private standards: "It is impossible to market an electric appliance in this country that is not UL-listed." These various forces call into question whether "exit" dominates private standards-setting. They also limit the application of George S. Stigler's theory that regulation exists primarily to satisfy demands of the regulated.