The recent tragic fire that killed 112 workers in a clothing factory in Bangladesh raises an interesting question in benefit-cost analysis: What is the economically optimal number of workers to die in industrial accidents such as factory fires or coal mine explosions?
Yes, this is deliberately phrased to arouse those who think raising the question demonstrates how economics is an amoral discipline practiced by heartless brutes with no sense of human decency. As a teacher, I always have students who argue that to even think of placing a dollar value on human life is a moral transgression, and I am sure some readers will react in the same way.
If that is your reaction, you should know that within the discipline, I am way out on the wing in terms of acknowledging the limitations of what economic analysis can answer. But I also know that if one opts to reject all economic analysis in such questions, it is likely that there will be more deaths, more pain, more sorrow than there need be. So follow along, even if outraged.
Start at a personal level. I know my own life is worth something. It is not zero, but it is also not infinite. I thus am willing to pay $10 more for a chain saw with a brake that reduces my chance of injury from small to very small. I am willing to pay a few hundred dollars so our car can have air bags that improve my chances of surviving a crash. But I would not pay another $1,000 for the saw or another $20,000 for the car to have these same features.
Assume I had a deadly disease and had to pay for treatments out of pocket. Were I told, “This treatment will cost $10,000 and will give you a 90 percent chance of keeping you alive for another five years instead of just a 15 percent chance,” I would pull out my checkbook. But what if the trade-off were “cash out all your assets to pay for this treatment; you won’t have anything to leave to your wife and kids, but we can guarantee you a nice week with them before you die. Else you will go tonight.” I’d say goodbye to the wife and kids now.
Others might make somewhat different decisions, but it is clear there are situations in which we could improve our own satisfaction by making choices that implicitly put a value on our own lives.
Anyone knowing U.S. history who read of the Bangladesh tragedy may have thought of the 1911 Triangle Shirtwaist factory fire in New York City that killed 146 workers, mostly young women, mostly poor immigrants.
The similarities are remarkable: a multi-story building, locked exits, piles of highly flammable materials, supervisors giving orders that proved deadly and inadequate fire departments.
Similarly, one cannot read without remembering our own history of the frequent coal mine disasters in China that kill thousands per year.
In 1907, more than 3,200 U.S. coal miners died, a far higher per capita and per ton of coal rate than in contemporary China.
Annual coal mining deaths never fell below 2,000 until 1921 or below 1,000 until 1946. They average 31 per year over the past decade.
U.S. factory fires are rare, although 28 workers were killed and 55 injured behind illegally locked fire doors at Imperial Foods in Hamlet, N.C., in 1991.
Other workplace deaths are drastically reduced, although mining, construction, forestry and agriculture remain dangerous.
Government regulation, however destructive of individual liberty and economic efficiency as it may seem to Ron Paul or Ayn Rand, combined with Boxes of garments lay near equipment charred in the fire at the Tazreen Fashions Ltd. factory on the outskirts of Dhaha, Bangladesh. (Associated Press: Ashraful Alam Tito)
better technology, can save lives.
So should Bangladesh and China adopt U.S. or European regulatory practices? Why don’t they?
The answer goes back to the first question.
Economic theory and history demonstrate that as long as producers can “externalize” social costs — in other words, force someone else to bear them — competitive pressures or the simple desire for greater profits will keep them from spending money to reduce social costs such as worker injuries and deaths.
This is true even in cases like the Bangladesh clothing factory, Triangle Shirtwaist or Imperial Foods, where minuscule expenditures would have prevented the loss of many lives.
As is true in many other circumstances, enhancing workplace safety diminishes marginal returns or increases marginal costs.
In our country in 1907 or 1911, and in Bangladesh or China in 2012, very small expenditures of resources to reduce accidents and death can have large payoffs.
All that is needed is some mechanism, such as governmental legislation, to motivate such expenditures.
However, as more money is spent on safety and health, the cost per life saved inevitably rises. At some point, even the most compassionate people begin to question whether further expenditures are good for society.
Here, many still argue it is wrong to place any monetary price on a human life. But opportunity cost, the value of the alternatives given up when one chooses to commit resources to a specific use, is inexorable.
Perhaps I could reduce my chances of death by spending $50,000 for an extremely safe car rather $25,000 for a very safe one.
But I can spend my money on other things that give me more satisfaction than I would get from a slightly reduced chance of death in an accident.
There must be very small expenditures that Bangladeshi factories could make that would reduce workplace deaths significantly.
But what if it cost $100,000 per life saved? Of course, any human life anywhere must be worth that, many will respond. But even people who say the value of human life is infinite balk at expending much of their own money on a life in Asia.
The resources to save lives in a country like Bangladesh must come from that country.
What if the same $100,000 spent on childhood vaccinations or safer village water supplies saved two lives, or five or 10?
If a mechanism for channeling those funds to such higher-lifesaving purposes could be devised, should Bangladesh’s government impose the tougher industrial safety standards that would save one life?
Such questions are too broad to answer here. It seems clear that both Bangladesh and China could improve the total well-being of their societies by allocating more resources to workplace safety.
Their economies actually would be more economically efficient, with greater satisfaction of human needs for a given use of resources if government acted to correct the existing market failure.
But it is not clear the same is true for Switzerland or our own country.
Inevitably, a society must decide, either explicitly or by default, where that line lies.