Robert Reich thinks the recent recall of hundreds of millions of salmonella infected eggs is just the result of some “rotten apples” in the industry. It’s the same argument we heard after the Massey Energy mine explosion, the BP oil spill, and the Wall Street banks bringing on the financial crisis. Every week, more stories emerge of cases where companies are not looking out for their workers, customers, or their surrounding communities.
As long as thinking remains contained within this narrow ”rotten apple” framework, the systemic problem will never be addressed. Hyman Minsky looked at the financial system through a different lens, and realized that as the markets became more complex, a financial crisis became inevitable. His theory proved remarkably accurate in 2007 (although it still has not receive much attention within the economics profession). If we can also overcome the narrowing “rotten apple” thinking for non-financial markets, we might actually be able to build an economy that works for consumers, workers, and the environment.
Every business, consciously or not, weighs risk vs. reward. The examples you gave merely demonstrate that the anticipated reward was greater than the perceived risk.
Risk is divided into two subsets: severity and likelihood. The key is to make the punishment for the decision-makers, more severe and more likely, to the point where risk is perceived as being greater than reward.
The egg guy repeatedly has paid fines (perhaps out of petty cash) and has gone merrily on his way. If the egg guy was sent to jail for 20 years, and if the number of inspectors were tripled, there would be less malfeasance.
Rodger Malcolm Mitchell
I wish I could share your optimism for regulation solving these problems. I am in favor of implementing your solution, and am certain that it would help. The problem is actually implementing the tough punishment in an economy where the foremost business of business is circumventing and evading or eliminating regulation imposed by the government.
Strictly enforcing laws and punishing criminals is such a straightforward and obvious remedy; no one can object to it. But then why has it not been done yet? Why do we continue to find rotten apples in just about every industry?Unfortunately, the situation seems to be much more complicated.
Nice foray. As soon as Minsky and the relevance of the post Keynesians was obvious attempts began toward trivializing the whole approach. The “Minsky Moment” cliche was an example. Add this to the co-optation of the entire economics profession via the gravy flowing from the fount also known as the US Federal Reserve. Have y’all thought about establishing something like the UMKC Buckaroos as a learning simulation. Point here is that those currency units are spent into circulation. Part of the solution is to find ways to demonstrate that not only was Minsky right with his instability “hypothesis,” but also the whole post Keynesian body of practice is also practical. As measured by results, aka functionality, it is way more likely to deliver the goods, so to speak, in contrast to the posturing applied with intent to discredit all forms of Keynesians, rather than just the bastardized counterfeits. The major point is that this whole economic ship of freight and state could be turned around in probably a year if the broadband version and vision of Minsky et al was taken seriously. cheers, Tadit
Kasey, you said, “Strictly enforcing laws and punishing criminals is such a straightforward and obvious remedy; no one can object to it. But then why has it not been done yet? Why do we continue to find rotten apples in just about every industry? Unfortunately, the situation seems to be much more complicated.”
How can the situation be much more complicated (than the proposed solution) when the solution has not been tried? Read the news. There are too few inspectors; the FDA does not have the power to enforce recalls; the punishment is slight.
I can’t imagine why you reject it with your “much more complicated” comment. What’s your “more complicated” solution?
Rodger Malcolm Mitchell
In my opinion, the film “Food Inc.” does a wonderful job describing how regulation of the food industry was vigorously dismantled in the 1970s and 80s by food companies– this includes food inspection, quality control, and slaughterhouse safety standards.
We do need more inspectors and tough laws. But if implemented, I am not sure what would stop the major companies from dismantling these laws once again. Maybe the political will of the people? I often find myself heeding the call of the institutionalist economists to understand the role that institutions play in shaping economic behavior. Only once that relationship is better understood, can we promote institutions that will shape ethical economic behavior. Until then, we are fighting an uphill battle. See, for example, John Kenneth Galbraith.