The Dim-Post

November 7, 2012

Cognitive bias and self-regulation

Filed under: Politics — danylmc @ 8:50 am

The Prime Minister was asked about Pike River in Question Time yesterday, and the impact of deregulation on the disaster, and he made a statement to the effect that no company is ever going to put profits over the lives of their employees.

Which is true, in the trivial sense that if the Board of Directors is offered a million dollars to kill ten employees they’re (probably) going to decline the offer. But decision making in modern corporations is diffuse. If the mine-safety officer asks for more money to ensure safety, and the CEO goes to his financiers to ask for an increase in operating costs, and they refuse because their risk manager won’t let them put any more money into the venture until revenues improve, then the CEO is unlikely to close down the mine and sack all his staff. Instead he’s going to tell his Safety Officer something like ‘do more with less or I’ll find a Safety Officer that can’.

And the Mine Safety Officer might even something to the effect of ‘I’ll make a cut-back that will make our mine 0.1% more dangerous’. That’s not very much, and the Safety Officer and CEO can agree that they’ll re-implement whatever gets cut when they have the money. Only that day never comes. Instead the operating budget shrinks, the financiers get very unhappy, the CEO’s job and the jobs of all the employees are on the line, and the easiest way to balance the books is to make further tiny incremental cuts in safety, because, after all, nothing bad happened the last time.

All those cuts might add up to a 1% chance of a major disaster per day, which still seems like pretty good odds until you realise that means three to four major disasters per year. But everyone involved is strongly incentivised against coming to that realisation.

John Key’s perspective on workplace regulation is that of orthodox neoliberalism: a business understands itself and its operating environment better than any government department ever can, so will always make superior decisions about how to balance issues like safety vs profit. But that assumes that the people running the business are rational, impartial agents with wide scope to make decisions when they probably don’t have any of those qualities. Any rational, impartial decision makers are going to be employees of a government regulatory body, who don’t have huge financial and emotional stakes in the continued operation of the company.

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31 Comments »

  1. Very well put, especially your final paragraph.

    Comment by TerryB — November 7, 2012 @ 8:53 am

  2. Kate Wilkinson did in effect do just that. She canned the plan from 2007-8 that would have re-instated the monitoring of Mine Safety, in spite of Mr Key claiming in Question Time that it was just for minor surface mines.

    Comment by xianmac — November 7, 2012 @ 9:27 am

  3. “Any rational, impartial decision makers are going to be employees of a government regulatory body”

    Have you ever dealt with any? Use that same phrase around other authoritarian roles – say parking wardens, police, teachers, stadium security, treasury officials, council enviro standards monitors, breast feeding advisors – and try and keep a straight face.

    while inspectors may not have direct financial and emotional interest in a company, they do so in their careers, and inspectorates are not short of ego driven, inflexible ‘didn’t do it like that in my day’, ‘we are the govt and you’ll do what we tell you’, ‘I’ve got a post-grad diploma so I must know how this should be done’ types. They also have keen and dedicated people and they also have time servers. They are no more or less rational than any other workplace IME.

    The other side of this is that businesses need the flexibility to manage their operations, and operations change. There are hundreds of thousands of businesses in NZ and probably hundreds of millions of processes that could be risks. No bureaucrat will be able to keep up with everything being done now let alone innovation in work practices or technologies. Tying businesses to the speed of bureaucrats’ abiity to do paperwork is slightly scary.

    There will always be a tension. 99.9% of the time we go through our days without policemen in our cars, food safety peoplee in our kitchens, child protection people in our bedrooms. And we shouldn’t forget that plenty of companies have long and proud histories of not killing their staff and customers in similarly dangerous environments. So how do we make it not worth ratbags like the Pike River management playing fast and loose with lives, while protecting and encouraging the good guys? I don’t have your faith in an inspector driven system.

    Comment by insider — November 7, 2012 @ 9:48 am

  4. How on earth can John Key say (in effect) “…no company is ever going to put profits over the lives of their employees” whilst also saying “”The company [Pike River] completely and utterly failed to protect their workers.” (See http://www.nzherald.co.nz/politics/news/article.cfm?c_id=280&objectid=10845396)

    Unless, of course, he thinks the Pike River Company failed to protect its workers for reasons other than the pursuit of profits?

    Comment by Andrew Geddis — November 7, 2012 @ 9:50 am

  5. John Key’s hard line and callous re-statement of neoliberal orthodoxy in parliament yesterday (a statement that was direct contradiction to what he told concerned voters watching Campbell live the previous night – the guy simply has lied to the public and he relies on the noise of the 24 hour news cycle to hide) shows his government considers New Zealand workers to be expendable line items in the quest for profit. One the 29 men at Pike River had exhausted their potential for political showmanship they’ve been discarded. They will remain unburied, forgotten and their deaths will be pointless, because all of those things will cost to much to put right.

    It is disgraceful, but that is how capitalism works, folks.

    Comment by Sanctuary — November 7, 2012 @ 9:53 am

  6. Up to a point, Lord Copper. I am not sure that generalising from the first major mine disaster in 45 years provides such hard and fast lessons. A key problem with undergound mining is its quite literal invisibility. I suspect an approach which required a set of safety indicators to be updated in real time and be publicly displayed might be the best start to reform. Being out of the public/consumers’ eye does lead people to think they can cut corners. One thing that stands out in the Pike river report is the failure of every single actor to do their jobs well from the Board, management, and workers, to the DOL, the contrators and the unions. If any one of these actors had carried out their tasks as they were intended (or had placed significant pressure on others to do so) the probability of the disaster would have declined dramatically.

    Comment by Roger — November 7, 2012 @ 10:11 am

  7. “… One thing that stands out in the Pike river report is the failure of every single actor to do their jobs well from the Board, management, and workers, to the DOL, the contrators and the unions…”

    Every disaster is the result multiple systemic failure.

    Comment by Sanctuary — November 7, 2012 @ 10:17 am

  8. I don’t know about lives, but companies put profits ahead of employee safety every day. Inadequate or lack of washing facilities, lack of earmuffs in noisy environments, ill-trained use of chemicals; etc.

    Comment by Dan — November 7, 2012 @ 10:22 am

  9. Oh, http://www.youtube.com/watch?v=NUjjFETMTxE

    Comment by Christopher — November 7, 2012 @ 10:35 am

  10. I don’t know about lives, but companies put profits ahead of employee safety every day.

    Yes. Or to put it another way, John Key is a lyin’ bastit.

    Comment by Psycho Milt — November 7, 2012 @ 10:38 am

  11. Your analysis aligns with decades of painful experience…..yet for some reason the PM still isn’t (really….) able to see it. I can’t vote for such people. I never have.

    Comment by Steve (@nza1) — November 7, 2012 @ 10:45 am

  12. I’ve since noticed that my point at 4 above essentially replicates Anthony R0bins’ post over on The Standard: http://thestandard.org.nz/two-faced-john-key-on-pike-river/

    I guess the point is that we can trust every other company not to do what this company did, because … incentives!

    Comment by Andrew Geddis — November 7, 2012 @ 10:51 am

  13. I think Key’s comment was pretty obviously meant to make people feel better, rather than to be taken literally.

    A.

    Comment by Antoine — November 7, 2012 @ 11:16 am

  14. @Antoine,

    Here’s the actual exchange in the House:

    “KEVIN HAGUE: Does he agree that standard economic theory suggests that profit-maximising firms will always prioritise profitability over safety, unless the Government, as regulator, ensures the safety of workers?

    Rt Hon JOHN KEY: I think that is a ridiculous statement. That is saying that a company is prepared to risk the deaths of its employees and the reputation of the company for the sole purpose of making money, and even from the most hardened socialist I find that something difficult to believe. In the case of the Pike River mine, let us argue just for a moment that the Pike River Coal company was halfway through its mining operations, and was a successful operation that was operating well. An explosion of the magnitude that took place back in 2010 would have then completely and utterly collapsed that company. That would have made no economic sense to anyone.”

    It appears Key’s argument is that if Pike River had been making money, then it wouldn’t have scrimped on worker safety in order to make even more money. Which is kind of beside the point, really.

    Comment by Andrew Geddis — November 7, 2012 @ 11:55 am

  15. Key admitted on Tv the other night that Pike River put profits ahead of safety…more recently he’s said that David Beckham must be a smart man because he’s made more money than him (Key).

    Comment by Ross — November 7, 2012 @ 12:26 pm

  16. @Andrew Geddis: Thanks for that link. Anthony Robins quotes Key on Campbell Live directly contradicting his answer in Parliament:

    I mean in the end what this report says is that the company essentially put its profits and its production ahead of the safety and lives of those 29 workers.

    Next day in Parliament, he calls that view ridiculous, and something not even a hardened socialist should believe. He really does just say whatever’s convenient at the time.

    Comment by Psycho Milt — November 7, 2012 @ 12:33 pm

  17. I think that in one instance Key was agreeing that Pike River had put profit before safety and in the other he was disagreeing with Kevin Hague’s claim that this happens with all businesses at all times (“firms will always prioritise profitability over safety”).

    they’re slightly different contexts.

    Comment by NeilM — November 7, 2012 @ 1:09 pm

  18. Not an absolute correlation but…

    We have a pretty safe and effective public health service by international standards (don’t laugh, it’s true). It is also, again by international standards a reasonably cheap and efficient health service…despite the “bottomless pit” rhetoric from successive Health Ministers. The same health service, without external scrutiny and monitoring at mutiple levels ( MOH, accreditation, HDC, MCNZ, Nursing Council, CoM etc etc), would be a disaster.

    The people who work in the health service are mostly good people who work hard and well. They too would never put finances “over the lives of their employees/patients”. But without the complex system of internal and external checks and balances the system would become increasingly unsafe. Well meaning individuals get lost in the noise.

    Within public hospitals the pressure to rein in costs, to do more with less, to cut corners, to cut services in various ways, is a daily reality. You can’t leave patient safety and quality decisions in the hands of the same people facing up to the Minister and his dreaded annual “letter of intent” to each DHB.

    I would suggest that when you take away external mine inspectors something similar was bound to happen…

    Comment by PPCM — November 7, 2012 @ 1:31 pm

  19. John Key has said very little and done very little to comfort the families of the 29 miners, and has said and done very little about changing this for the future. Now you can say that certain elements of his actions regarding the Pike River mine aftermath have not been entirely negative, but this is a situation in which the overview needed is for a Prime Minister and his Cabinet to tackle the issues head on in a positive proactive way, and that is what we don’t have.

    Furthermore, I disagree with Kate Wilkinson’s resignation of the Labour portfolio. I think this was an opportunity for her to decide to do something positive for the future, but she’s chosen not to. And John Key accepted her resignation but stated that he thinks she’s a good Minister. Which means that it was actually not the honourable thing to do but rather a cop out, a point they’re making to Labour, “hey, I’ll resign before you ask me to, to save face, even though I have proof that I wasn’t responsible for this”.

    And apart from a couple of semi-incoherent mutterings in Parliament about an investigation, Key has distanced himself from taking any decisive action that will mean anything for any working class Kiwi in the future.

    Comment by Dan — November 7, 2012 @ 1:32 pm

  20. @NeilM,

    Right – he seems to be saying in Parliament that if Pike River had been profitable in 2010 (“…let us argue just for a moment that the Pike River Coal company was halfway through its mining operations, and was a successful operation that was operating well …”) it would have been irrational to risk that profit by putting the mine (and its workers) at risk, so the company would have made safety a priority. But even if this were true – and it isn’t by any means a necessarily true claim … you can have “badly run” companies that make money – it isn’t really much of a defence of a deregulated, “trust-the-market” approach to health and safety.

    Unless, of course, you take the metaphor of “creative destruction” literally.

    Comment by Andrew Geddis — November 7, 2012 @ 1:32 pm

  21. Strikes me that it might well be impossible to mine coal underground in NZ on a safe, economic basis. There’s only two or three such mines left open, with less than 200 people employed. How are they going to pay for the kind of safety and rescue services the industry needs?

    Comment by richdrich — November 7, 2012 @ 2:20 pm

  22. @ PPCM

    “I would suggest that when you take away external mine inspectors something similar was bound to happen…”

    yet something similar did happen under a heavily controlled and inspected system 40 years ago (the last major event) and other operators are doing fine under the current system, as are many many busiensses that don’t have inspectors. And despite all the checks, ‘similar’ hospitals have significant mortality rate differences.

    Inspectors are not a panacea. It’s a cultural change that is needed in some organisations, partiularly DoL. PRC had a very bad culture with a catastrophic end. External inspectors may have stopped that but may not, given that everyone was complicit as no-one spoke out despite all the very public operational failures that preceded the explosion.

    Comment by insider — November 7, 2012 @ 3:17 pm

  23. He’s saying that it’s better for private companies that their managers have more control over their health and safety practices than the regulators. He justifies it by saying they want as much profit as possible and are therefore likely to look out for their workers better than the public sector can. He will never admit the truth, that there is actually a conflict of interest between looking out for employee safety and looking after the money side of things. That is why he accepted Wilkinson’s resignation, because it’s the easiest way out, instead of admitting that it may be a viable option to increase regulation. An increase in regulation is in complete opposition to his ideology.

    Comment by Dan — November 7, 2012 @ 4:44 pm

  24. “He will never admit the truth, that there is actually a conflict of interest between looking out for employee safety and looking after the money side of things.”

    Really? How did taking safety lightly turn out for PRC management and shareholders? How did BP do after Texas Refinery and Deepwater Horizon fires?

    Comment by insider — November 7, 2012 @ 5:12 pm

  25. A couple of disastrous accidents that happen on occasion, compared with scores of businesses in New Zealand that have and continue to profit from lack of health and safety and their associated costs on a regular basis. You can have a business in a marquee in this country for three months or longer.

    Comment by Dan — November 7, 2012 @ 5:49 pm

  26. How New Zealand’s workplace safety compares: a graph.

    We were among the best in the world, thanks to a relentless focus on safety by ACC (the institution so hated by so many employers and self-employed in this country – who don’t realise their costs under a private insurance regime). We’ve let up, and things are getting worse.

    Anecdata… I worked for an industrial abseil company in the mid-2000s. One member of staff had already died in an accident.* Yet we continued to work in extremely unsafe conditions, with a pay structure that encouraged risk taking (we didn’t get paid if we didn’t work in high winds – in Wellington, and were constantly exposed to toxic solvents). This doesn’t represent anything other than a point of data, but I’m very sure based on conversations with others that this is hardly an outlier. The unions in NZ are disempowered, and their non-conflict stance which they’ve acquired comfort in over the last two decades means they’re not the people to do the job. They basically told me they couldn’t/wouldn’t help unless the workplace was unionised, and that I would have to unionise it myself. We need a strong minister of labour, from outside the unions (and thus from outside Labour) to change our workplace environment. Give the job to Kevin Hague.

    *I didn’t find this out til 4 months on the job, since nobody mentioned it. I resigned shortly afterwards.

    Comment by George D — November 7, 2012 @ 6:35 pm

  27. I’ll try that graph again, this time from the excellent Gordon Campbell article it’s hosted at.

    Comment by George D — November 7, 2012 @ 6:38 pm

  28. @insider

    I completely agree that external monitoring is not a panacea for any industry. As you say, it is a cultural change within organizations that is needed. In my hospital we put enormous emphasis on developing a focus on safety and quality in everything we do. We don’t always get it right.

    The problem I am trying, probably badly, to describe is that even with the right culture internally you can’t trust the complex hospital machinery to police itself. There is always a conflict between perfect results, meeting the demand for services and meeting the ever tightening fiscal targets. If you leave these decisions to DHB managers inevitably quality will suffer. Clinicians of all kind need to be involved but, above all that, external checks and balances are needed.

    Comparing mortality rates between hospitals is incredibly complex….you need to control for so many variables . I think you know that because you put the word “similar” in inverted commas!

    Comment by PPCM — November 7, 2012 @ 7:16 pm

  29. It is very simple.

    The market rules.

    The market knows the price of everything.

    The market does not know the value of anything.

    Only the bottom line counts, ask Ennron or Pike River.

    Neocon economists and their supporters are pimps who would sell their grandmothers if they could find a “market” for them.

    NO! no, please I do not want to know if there is such a market.

    Comment by peterlepaysan — November 7, 2012 @ 8:41 pm

  30. @ George

    Thanks for that. It is sobering. My anecdata is the direct opposite – large companies paranoid about any safety breach. The biggest fear being having to report failure to senior management rather than acc. Changing a light bulb required two people in a coned off area with a special ladder with handrails. They had the scale to develop the systems and processes to do that level of safety management. Most small companies don’t.

    I wonder if acc is a problem not a solution for small business because the risk is not priced appropriately, so it is an easy insurance that requires little thinking about and management of safety. It’d be interesting to see if safety risk is related to business size.

    Comment by insider — November 7, 2012 @ 10:08 pm

  31. I have observed large discrepancies between the health and safety practices in large companies compared to small and medium companies/businesses. While large companies tend to have everything in place and mapped out, smaller ones do not. Therefore it is absurd for someone such as a Prime Minister to state that the private sector is able and willing to do this for themselves, when it is perfectly obvious that this is not the case and particular attention/assistance is needed for the smaller fish in the pond.

    Comment by Dan — November 8, 2012 @ 2:59 am


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