Questions on product liability and government

In the debate over amendments to the Trade Practices Act during 1992, there were a lot of statistics thrown about regarding the number of injuries and deaths arising from defective products in Australia. For instance, Senator Powell of the Democrats said, 'In relation to injury, illness and incapacity, it has been estimated that the figures indicate around 10,300 permanent injuries or illnesses for the whole of Australia for the few years covered by the survey [by the Trade Practices Commission], and around 500 deaths for the same period...An estimated 1,800 to 3,600 children are injured each year as a result of physical product failure with a higher, but unfortunately unquantifiable, number injured because of unsafe design. Figures for adults injured as a result of physical product failure ranged between 9,500 and 19,000.'

Last year I wrote that:

It is instructive to first look at what situations self-regulation would generally work. The great philosopher Montesquieu wrote in his Spirit of the Laws that "it is almost a general rule that wherever manners are gentle, there is commerce; and wherever there is commerce, manners are gentle." Samuel Richard added that "commerce makes him who was so proud and haughty, suddenly turn supple, bending and serviceable. Through commerce, man learns to deliberate, to be honest, to acquire manners, to be prudent and reserved in talk and action." This is not surprising when we consider the incentives at work in a business.

The first and foremost objective of a business is to make profits. Without the profit motive, no entrepreneur would take the risk of setting up a business in the first place. To achieve profits a businessperson needs to know what the market, or the consumer, wants. Hence, it is in the interest of the businessperson to be ethical in his or her relations with customers, largely due to reputational effects. One can regard this as true with one important qualification: there must be competition. In the absence of competition – a monopolistic situation – the incentives that pushed the businessperson towards, for instance, adopting corporate social responsibility, will no longer be strong enough to ensure ethical behaviour and human nature will take over.

In our daily dealings with businesses, reputational effects are ordinarily quite powerful. This is why franchises prize the 'good-will' factor so highly. But evidently there are numerous careless manufacturers causing pain and suffering, and reputational incentives aren't working to the degree they should - that is, 99.99% of the time. The inclusion of the strict liability mechanisms in the Act have had the effect of causing a large number of cases to be settled before they get to court. Companies are understandably more cautious now that it has been made much easier for a consumer to recover compensation.

Product liability laws impose a cost on a manufacturer that is perhaps a part of the government's legitimate role as impersonal arbitrator. With freedom comes responsibility, and if businesses cannot meet a reasonable standard then it is justifiable to have the government intervene. But where to draw the line? And why? If a 'balance' is to be struck how can we objectively decide this? In the speech linked above Powell proposes the onus of proof to demonstrate whether a product has a defect be placed upon the manufacturer rather than the consumer. It seems difficult to justify this sort of heavy-handedness, yet the fact that injuries and deaths are presumably continuing (I don't have the data on hand to show if they have reduced after the amendments to the TPA) suggests something should be done.

I tend to think that the government's role should be minimal. We need ways for people to sue and recover compensation for their injuries, but there is an important role for groups like the Australian Consumer Association which, according to Powell, highlights around 50 unsafe products each year. In other areas, and under circumstances where it's not a matter of life and death, I would strongly support these sorts of consumer associations. Government control of film classification for example, should be scrapped. People should be able to go to whichever voluntary association's ratings best fit with their morals and values. Associations of this nature are more likely to have an interest in the welfare of the people they serve. However in the case of product liability I am still unclear as to the appropriate role for government.