Socializing Risk

This month's investigative cover story on the Love Canal episode illustrates in a particularly dramatic way the power of wrong-headed ideas.

To begin with there's the by-now routine assumption of corporate guilt by the news media. The Hooker Corporation has been accused, tried, and convicted in the court of public opinion, thanks to journalists who didn't even look for contrary evidence. Whatever is the outcome of the ongoing litigation of this case, it was never as cut-and-dried as the public has been led to believe. As our story reveals, plenty of evidence implicating parties other than Hooker was right there all along, in the public records in Niagara Falls.

Yet the term "Love Canal" has passed into the language as an exemplar of corporate irresponsibility. And because this myth is widely believed, we have now been blessed with something called the "superfund" law.

The superfund actually consists of two funds. One will pay for mishaps occurring at waste dumps that meet new federal standards; it will be financed by a tax on wastes deposited in those dumps. The other fund—paid for by a tax on chemical and oil companies and by all of us as income tax payers—will be used to clean up chemical spills and hazardous waste dumps.

What we have here is yet another instance of the socialization of a risky industrial situation. You know the pattern. A much-publicized accident or catastrophe leads to sympathy for the victims and thence to general demands to "do something" so that such situations won't occur again. The result is the creation of a new federal bureaucracy with the power to set and enforce safety standards—and an implicit or explicit limit on the liability of the potential wrongdoers.

We've seen this pattern repeated time and again. Air crashes in the 1920s led to a federal takeover of aviation safety, and successive crashes continue to yield increased power for the Federal Aviation Administration. The Thalidomide incident in 1961 led to the transformation of the Food and Drug Administration into a vastly more powerful regulatory body. The fear of nuclear accidents led to creation of the Atomic Energy Commission and its successor, the Nuclear Regulatory Commission, to limit liability for accidents and to set and enforce safety standards.

There is no question that these agencies are set up and reinforced in their powers in response to legitimate, often tragic, problems. And there is no question that they take their roles seriously and expend large sums of money in pursuit of their mandates. There is also no question that each has a substantial effect on the industry it regulates. But the important question to ask is whether this type of solution—bureaucratic regulation—is in fact the best way to deal with complex safety problems.

Evidence is accumulating that it is not. In aviation, major crashes keep occurring, all too often traceable (as in the 1979 DC-10 crash) to a breakdown of the FAA's safety regulation system. American consumers are denied access to hundreds of potentially life-saving drugs, due to the FDA's bureaucratic hyper-caution in approving them for use. And the nuclear power industry stands virtually paralyzed by regulatory delays and the aftermath of the Three Mile Island accident—an accident stemming directly from the nature of the regulatory system (see "Who Caused Three Mile Island?" REASON, Aug. 1980).

Moreover, consider the injustice built into such solutions. Instead of paying for their own standards development and safety research—as most other industries do—the aviation, pharmaceutical, and nuclear industries have managed to get the taxpayers to absorb varying amounts of this portion of their overhead. And as for the victims of disasters, how secure can such people (or their survivors) be, knowing that the offending firm can seek shelter in the defense that it met all the applicable government standards—however politically motivated, however ineptly administered those standards might be?

Yet it is just such a solution that has now been legislated for the toxic waste problem. All firms—responsible and irresponsible—will be taxed to pay for the misdeeds of the worst of them. So will each and every one of us. And any firm whose dump meets federal standards will escape liability for harm to others. In certain instances, liability will be explicitly limited.

What's the alternative? It's the same solution we have urged for the aviation, drug, and nuclear industries: privatize the risk, don't socialize it. The law should provide for strict and full liability for all harm caused by chemical dumps and spills, with no limits and no escape hatches (like "sovereign immunity"). If companies and government agencies stood thus naked before the law, what would be the result? We would have larger and more robust systems of insurance, and that in turn would require extensive private research and development efforts (on waste-disposal technology) and vastly improved information systems—paid for by the industry's customers, not taxpayers. Firms unable to satisfy safety experts and thus unable to get insurance would fall by the wayside as their capital dried up.

It's true that we can't afford "another Love Canal." But what that really means is that we can't afford to add to its legacy another costly bureaucracy that destroys incentives for responsible action while soothing the public with an aura of safety. Yet that seems to be just what Congress is giving us.