Who Benefits from Private Safety Standards?
Private standards-setters are widely assumed to be "captured" by business interests. Suggesting otherwise would, under this view, be as naive as indulging the notion that public agencies simply carry out their statutory charge to act "in the public interest." But developments in the public sector suggest that capture theory does not fit protective regulation nearly as well as it fits economic regulation. The classic state-
ments of capture theory—Samuel P. Huntington's "administrative marasmus," Marver Bernstein's "life-cycle theory," and Stigler's "theory of economic regulation"—stem from agencies that regulated prices or terms of entry. There is little justification for such regulation, the kind long performed by the Interstate Commerce Commission ("the most studied of all agencies" when McConnell and Lowi wrote about government regulation). But protective regulation is different. It is economically defensible in various (arguably frequent) instances of market failure. And, at least in the public sector, protective regulation does not come about through the demands of business. More often it is adopted over their objections. "Only by the most extraordinary theoretical contortions," Wilson concluded, can this regulation be explained "by reference to the economic stakes involved."
Protective regulation in the private sector is similarly complex. Business interests are neither unitary nor necessarily opposed to the public interest. Some forms of private standards-setting, typically those sponsored by trade associations, are controlled entirely by the regulated. Others are more independent, offering services such as "third-party certification." The mission of these organizations resembles those of the public agencies charged with protecting health and safety. Their status is unclear, however, and this lack of clarity has given rise to several disagreements about motives. UL lost a legal battle with the Internal Revenue Service in 1943 when a federal court decided that "testing for public safety" is a business, not a charitable undertaking. A private standard developed by the National Sanitation Foundation was upheld in a recent case partly because the court considered the organization to be "independent." How to characterize the American Society of Mechanical Engineers (ASME) was the source of strong disagreement in a recent Supreme Court case, with one side calling it a "scientific" group and the other side alleging it is "dominated by commercial interests."
To be sure, there is a rich tradition of using "self-regulation" to stifle competition. This includes standardization of sizes and shapes, practically a prerequisite to effective price-fixing. But safety standards are different. Granted there are some anticompetitive ones masquerading as safety standards, but there are also genuine safety standards that, although not necessarily as strict as what government would adopt, certainly benefit the diffuse interests of consumers.
These private standards-setters do not fit easily into the existing understanding of private organizations. In their landmark study of formal organizations, Peter Blau and W. Richard Scott classified organi-
zations "on the basis of the cui bono —who benefits." In his book Who Profits, Robert Leone suggests looking at regulation in a similar way. Either way, private standards-setters are far more complicated than generally appreciated. In Blau and Scott's terms, private standards-setters are likely to be considered "mutual-benefit associations," organized primarily for the benefit of membership. But that analysis fits the trade associations much better than the "independent" organizations. The membership of, say, the National Fire Protection Association is so large and diverse that the "mutual-benefit" theory clearly does not fit. The members are not the primary beneficiaries of most standards. And many organizations, such as Underwriters Labs, do not even have members.
These groups might be considered "service organizations" because they have clients. But that description is also inappropriate, because product testing and certification appear to be directed at third parties, including insurance companies, wholesale buyers, and individual consumers. This leaves the most nebulous category of all: the "commonweal" organization, whose prime beneficiary is the public at large. While this term undoubtedly describes some private standards-setters, it is not clear whether "commonweal" private standards are likely to be better or worse than the public alternatives.
Several political scientists have condemned private standards in any case. Lowi declared private safety standards guilty by association with the old National Recovery Administration (NRA). Calling these standards "indistinguishable" from the old NRA codes, Lowi marveled that "there is so little suspicion as to their constitutionality" under the nondelegation doctrine. Others have invoked the ghost of Herbert Hoover—the engineer turned secretary of commerce intent on a grandiose plan of economic "standardization"—to belittle private standards.
These arguments are not convincing. In contrast to Lowi's interpretation, Donald Brand has recently argued that "ideology and the institutional interests of the state played a more important role in determining the behavior of those administrators than special interest demands." Moreover, just as it would be inappropriate to judge the Environmental Protection Agency based on the performance of the Interstate Commerce Commission, it is inappropriate to judge private safety standards as if they were akin to the NRA's "codes of fair competition" (in other words, economic regulation).
Lowi's argument also misrepresents the role of the public and private sectors by suggesting that government is preeminent in protective reg-
ulation. By framing his argument in terms of "delegation," Lowi implies that these functions are somehow inherently public. This conception is not supported by history. The private sector was in the business of product safety decades before the Consumer Product Safety Commission was created in 1972. The American Gas Association Labs started regulating gas appliances in the 1930s, and Underwriters Laboratories was certifying electrical equipment before the turn of the century.
These arrangements are far more complicated than capture theory admits. Undoubtedly, some private standards-setters are mainly self-serving. But others probably promote the public interest to a significant degree. When OSHA adopted hundreds of private standards, the problem was not that they were private; it was that the agency acted indiscriminately. Some of those standards were essentially defunct, like old statutes never removed from the books. Others were more desirable. Unfortunately, OSHA did not distinguish between the two. In 1988, however, without any measurable opposition, OSHA adopted a more carefully selected group of private safety standards. Certainly the public benefits to some extent from these standards, although the magnitude of the benefit and its corresponding cost must be examined before reaching any broader conclusions.