Alternative Policy Instruments and Institutions

Developing public standards is not the only way for government to seek what safety standards have to offer. Government can also attempt to

influence the development of private standards. Since private standards cover literally thousands of subjects unlikely to be regulated by government in the foreseeable future, this strategy may have a much greater effect on public safety than government could ever hope to achieve through the small number of standards that survive the political process and the courts. Unfortunately, standards policy has been almost silent on other methods of improving private standards-setting.

Safety standards interact with a host of other policy instruments and influences. Harter and Eads observe that liability law, workers compensation law, information, and wage differentials are among the array of instruments that affect workers' health and safety.^[14] However these instruments and institutions are evaluated on their own account, they affect standards-setting and hold the potential for improving it indirectly. Harter and Eads emphasize the importance of taking these instruments and institutions into account when analyzing a specific policy space: "Policy instruments coexist and interact. Modifying one does not represent the adjustment of an isolated instrument, but a shift in the constellation of instruments and institutions affecting private behavior."^[15]

It is beyond the scope of this study to examine the role of these "external" forces independent of their effect on safety standards, although they should certainly be considered in any analysis of specific standards. OMB raised such issues in the grain elevator proceedings, appropriately questioning whether the force of liability law and insurance provided sufficient incentives for safety. But, as Harter and Eads suggest, changing these policy instruments will probably alter the standards-setting system. These need not be mere side effects. They might form the basis for useful, purposeful changes in standards-setting. The case studies suggest many important linkages between these policy instruments and standards-setting. Several policy instruments and institutions whose relevance to standards-setting was suggested by the case studies are discussed below.

Reforming Liability Law

Liability law is probably the most widely recognized policy instrument that affects private standards-setting. It was an important influence in several of the case studies. The debate over "tort reform" encapsulates the familiar arguments about whether the direct effects of liability law hamper public safety objectives.^[16] The case studies add to that debate by suggesting that liability law has undesirable effects on standards-

setting. At least two reforms seem in order. Both would help ensure that improvements in standards are encouraged, rather than discouraged, by the law. These two changes would probably have a larger impact on private standards-setting than any aspect of the various "standards policies" offered in the past ten years.

First, improvements made in a standard should not be admissible in cases concerning mishaps prior to the improvement . Although there is some support for this position in the law, "the growing tendency," according to UL's general counsel, "is to admit into evidence post-accident revisions to standards."^[17] This can only discourage improvements in standards. UL would be more willing to upgrade its standard for metal chimneys if doing so did not create the implication that thousands of existing chimneys are, by UL's apparent admission, inadequate. Similar concerns were apparent when the NFPA's Agricultural Dusts committee added provisions for motion-detection devices to the appendix of the standard in 1973. These provisions might have been made mandatory but for the implication that facilities without such devices were below the generally accepted industry practice. Protecting standards-setters and businesses against liability for making improvements would certainly advance public safety objectives.

Second, in assessing the reasonableness of the risk attendant to a product or process, the law should consider overall effects, not just specific incidents. In other words, the law should not impose liability when overall social benefits clearly outweigh specific adverse effects. This argument has been advanced in connection with innovation by individual firms such as drug companies.^[18] There are implications for standards-setters as well. The most persuasive reason why AGA did not require the oxygen depletion sensor on space heaters without prodding by the CPSC—a reason never committed to paper in either the public or private proceedings—is that companies were afraid that an occasional failure of the device would create new liabilities. Similar fears have slowed the introduction of other technologies, from vaccines to antilock brakes, that would unequivocally increase overall levels of safety. The perverse result is that standards-setters rationally avoid some actions that would make the world safer because, unfortunately, these actions might also increase exposure to liability.

Loosening Antitrust Law

Though not thought of as an instrument of public safety, antitrust law is often considered a proper tool for controlling private standards-

setting. Strengthening the influence of antitrust law is always a popular proposal. (Who wants to defend "trusts" or "combinations"?) Such proposals are particularly popular because more substantive suggestions for controlling private standards-setting are lacking. In the area of standards and certification, the FTC houses some of the strongest advocates of increased antitrust scrutiny. These staff attorneys place their hope in stricter antitrust enforcement largely because the proposal to regulate standards-setting by rule was abandoned by the commission under President Reagan.

There are two reasons for restraining this enthusiasm for controlling private standards-setting through antitrust law. First, reducing one type of error often increases another type. Stricter antitrust enforcement would probably eliminate some of the worst standards currently in use, but it would probably also eliminate some of the good ones. This study suggests that producers are increasingly crying "antitrust" to intimidate standards-setters from taking socially desirable actions. Stories about antitrust law inhibiting otherwise desirable actions are almost as common in the private sector as those about liability law. Certain metal chimney producers raised this argument with UL and were effective in keeping UL from upgrading the standard, even though research results from NBS support such a move. Antitrust considerations were also instrumental in keeping AGA Labs from adopting ODS technology that was produced by only one company. Increasing the strength of antitrust law may well decrease the propensity to upgrade private standards.

The second reason for restraint is that antitrust law threatens to heap undesirable administrative costs on the private sector. That is practically the intention of those pushing the due process argument. As two members of the Supreme Court realized in the Indian Head case, "insisting that organizations like NFPA conduct themselves like courts of law will have perverse effects."^[19] One effect is that due process itself can be exploited for anticompetitive reasons. The number of appeals to NFPA's Standards Council has increased to the point where it threatens to overburden the system. Higher administrative costs are likely to result in fewer standards and less frequent updating. The antitrust influence also threatens to burden the private sector with perhaps the worst aspect of public regulation: the judicial second-guessing that follows on the heels on most standards. The current level of discussion about antitrust and standards-setting is uninspired, relying on contrived distinctions that classify NFPA as "commercial" and the CPSC as "political."^[20] At the very least, antitrust doctrine should be reexamined

in a manner that recognizes the relevant institutional similarities and differences between public and private standards-setting. It should also be recognized that proposals to strengthen antitrust enforcement might actually be counterproductive, eliminating more desirable standards than undesirable ones. As Maitland argues, there are good reasons to permit more collective action by business organizations.^[21] Whether a loosening of sorts is possible without allowing an undue amount of undesirable activity is worth examining.

Public Information Systems

Perhaps the most promising possibility for government action suggested by this study is an information strategy. The government has a clear comparative advantage in generating two types of information particularly important to setting safety standards: applied research and feedback on real-world experience. The private sector is lacking in its capacity to generate such information. Government overcomes the "free rider" problem that plagues private efforts to produce so-called public goods. Government is also the only avenue for collecting vital information such as medical records that are otherwise protected by privacy laws.

The potential for influencing private standards-setting with information about real-world experience is significant. The private sector has demonstrated its willingness to alter standards in light of relevant information. A former CPSC voluntary standards coordinator cites numerous examples where the private sector responded to public information. Liability law also helps provide an incentive for the private sector to respond to injury information. Unfortunately, it also provides a countervailing incentive against collecting it. What you know can hurt you. In any case, the incentive to respond depends on the quality of information. Industry feels no need to respond to many of the existing CPSC data because they are so clearly inadequate.

Perhaps the most influential government organization involved in collecting information is the National Transportation Safety Board. The NTSB has no decisionmaking power, but its recommendations carry considerable weight. The NTSB was split off from the FAA "so that the same person … was not both promulgating civil air regulations and investigating the accidents they might cause."^[22] Avoiding this "conflict of interest," whether real or imaginary, seems to have bolstered the NTSB's clout. The FAA adopts many NTSB recommendations in short

order. Others are eventually adopted under pressure from members of Congress who use these authoritative recommendations to register support for the popular cause of aviation safety. "Without the NTSB," muses a lobbyist for the Association of Flight Attendants, "the FAA could turn all of these issues into technical mush." Devoting a specific organization to the collection and analysis of injury data would probably improve standards-setting in other areas as well.

Government could also exert a more positive influence on private standards-setting by doing more applied research. Most private standards-setting organizations would gladly replace various "engineering judgments" with decisions based more on science—so long as someone else shoulders the research costs. Voluntary associations such as NFPA do almost no applied research; they do not have the resources. Testing labs occasionally conduct such research, but seldom in connection with a single standard. Perhaps the best policy for government is to increase funding for the National Bureau of Standards. Not only does NBS have the necessary technical capability and reputation to conduct useful research and development, but it offers the right institutional setting for developing an intelligent research strategy. The cases demonstrate that prolonged NBS involvement can help improve private standards. The agency combined its technical knowledge and reputation to bring about beneficial changes in NFPA 211 and ANSI/AGA Z21.11.2. "Engineering needs a loyal opposition," argues Edwin Layton in a prominent book on the profession.^[23] Engineers face issues that are technical and political, in an organizational context that profoundly shapes personal incentives. They can best be kept in check by other engineers with the technical knowledge and institutional independence to challenge them. The National Bureau of Standards (now the National Institute of Standards and Technology) fits the bill, although its budget is still minuscule compared to its potential agenda.^[24]

Engineering Schools, Insurance Companies, and Other Influential Institutions

There are a host of institutions at the periphery of this study that obviously play an influential role in the achievement of public safety objectives. These institutions interact with private standards-setting in ways that are not well understood and deserve more attention. The rest of this chapter contains speculation about the policy implications of the influence of three "external" institutions on private standards-setting.

The discussion is organized in decreasing order of speculativeness. That is, the institutions most peripheral to the case studies, about which only the most tentative statements are possible, are discussed first.

Engineering Schools . One important institutional influence on standards-setting comes through engineering education. The influence is diffuse and difficult to measure but nevertheless important in shaping the ethics that predominate in the private sector. Engineering education has been criticized for being too narrow in focus.^[25] This study does not examine the details of engineering education, but it supports the conclusion that revisions might improve private standards-setting. A greater educational emphasis on economic trade-offs and human factors might improve the reasonableness of standards in two ways, respectively making them less demanding when the benefits are low and more demanding when human factors account for significant injuries.

Building Code Organizations . By design, this study also concentrates on "paired" public and private cases. In reality, however, private standards typically come in connected pairs or interlocking webs. The tendency of the private sector to separate product standards from installation and use codes is exemplified by the division of labor between UL and NFPA. The symbiotic relationship between these organizations is somewhat mysterious, and at times problematic. Matters are complicated further by the process through which these standards most often become law: municipal building codes. Building codes draw on the efforts of NFPA and UL, as well as those of various regional building code conferences—organizations that draft model building codes. The importance of the linkages between all these standards is clear. How to improve building code enforcement and achieve better coordination between installation codes and product standards is not. Perhaps the recently abandoned federal housing code deserves reconsideration. Possibly the government should institute a mechanism for bringing together those who write installation codes and product standards. Without improvements in the enforcement of building codes or the integration of design and use standards, it appears likely that some improvements in private standards will ultimately prove ineffective.

Insurance Companies . Insurance companies are also key actors affecting public safety. Not only do they spread risk, but, through

insurance underwriting, they determine which risks are insurable and at what rate. If premiums accurately reflect risk, then insurance can help internalize externalities and improve public safety. Several major standards-setting organizations, including UL and NFPA, trace their origins to the insurance industry. Safety standards help insurers in two ways: (1) they provide convenient underwriting criteria, and (2) they promote general loss control. But what about the reverse influence—that is, how insurance companies affect standards-setting? Two possible influences are indicated by the case studies. Both seem rather weak, however, suggesting the potential for improvement.

The first way insurers affect standards-setting is with information. Insurance companies identify problems and manage information. In theory, they should be able to provide standards-setters with helpful data on the size and nature of various hazards because insurers pool information on claims through institutions such as the Insurance Services Organization. In practice, however, insurers apparently contribute little useful information to standards-setting efforts. An insurance company representative testifying in favor of the CPSC woodstove rule was embarrassed by questions about the actual magnitude of the problem. In an analysis of residential fire insurance, David Hemenway concludes that "the insurance industry has not been especially helpful in providing useful [loss control] data." He suggests several policies that might improve the situation, but all require further study."^[26]

Second, as one of the primary users of safety standards, insurers are potential watchdogs for the quality of these standards. Unlike many participants in standards-setting whose interests are vested in particular products, insurance companies have a purer motive: reducing losses. Insurers certainly make use of these standards. Product liability insurers require compliance with UL and AGA standards. Some grain elevator insurers require compliance with NFPA 61B. But the case studies suggest that insurers are not very demanding users of private standards-setters. They are seldom involved enough in the details of particular hazards to know a good standard when they see one. Insurers play almost no role in the NFPA committees on aviation fire safety, even though individual fires can be catastrophic. The grain elevator standard is sadly lacking in critical areas of grain elevator safety, but reinsurers are apparently unaware that more effective standards for safety are possible. Moreover, in neither the grain elevator case nor the woodstove case does it appear that the premiums charged by insurance companies reflect differences in risk. Airline

officials also contend that their premiums have nothing to do with their loss control efforts.

This study suggests that insurance companies could improve the quality of private standards if they were more demanding. A small reinsurance company was apparently instrumental in getting UL to change its requirements for metal chimneys. But the low priority that many insurance companies seem to place on loss control has been noted by Hemenway.^[27] How to maximize the potential of insurance as a regulator of risk has long been a puzzle in the area of workers compensation. Somehow, the critical role of insurers as assessors and regulators of risk should be more widely recognized so that these issues are addressed in various areas of public safety.