Shorter me: economists should study business more, and in an ideal world, industrial sociology, before they try to do cognitive psychology
Peter Dorman at Econospeak takes issue with a Robert Frank piece about workplace safety, which has all the whoopee doo Econ-101 problems you’d expect. I think, though, that there is a really big issue Frank is wrong about that he shares with economists generally and that Dorman has missed. It is a problem of framing.
Frank (and economists generally) frame safety as something you buy (“safety devices”) not something you do (“a safe process of work”, as the UK Health & Safety at Work Act puts it). Safety is a product, not a process. The model in Frank’s head is that there’s a marginal cost of production curve, and you add an overhead cost of safety to it, shifting the curve up (aka an x-inefficiency).
In general, effective safety measures are usually something you do, and scattering costly “devices” around an unchanged process is a classic failure mode. Not least because they might instil a false sense of safety and lead people to take risks. Consider the Shower Jobby and his “cycle superhighways”, aka “some blue paint slapped on an urban motorway”. This video is a great visual illustration of the point. I had no idea it was so bad.
In this case, adding some “safety devices” to an unsafe process has not only failed to make it safer, it seems to have rendered it more dangerous because the participants – cyclists, drivers, and Transport for London – think it is safer.
Of course, economists do actually have a framework to analyse this point! And they’re usually very keen to expound it!
In the process view, though, it becomes clear that greater safety is not necessarily a cost.
Accidents cost money, in the same way that quality failures cost money. At the very least, in the most cynical 19th century Yorkshire mill-owner’s view, they cause downtime, quality problems, and damage to expensive equipment. In a less cynical and more general sense, accidents are just one of the sources of excessive variability in the production process, like late change requests, tools whose tolerances are too large, or a virus outbreak among the Windows boxen. If accidents are happening, this is a symptom of problems with the process.
Reworking production processes to eliminate the sources of variability is precisely what industrial managers are meant to do all day.
For some reason, if you do this to reduce rework or machining waste, that’s awesome, but if you do it to reduce accidents, that’s a cost imposed by stupidheads – even if you do it with only cynicism in your heart, in order to eliminate the downtime and expense of hosing the body parts out of the conveyor belt. You see the power of framing.
Correctly considered, accidents are another source of unwanted process variability and therefore anything that reduces them is an opportunity for improvement. The model in your head now should be one with two marginal cost curves of different gradients, one where accidents are happening and one where they aren’t.
This is actually a separate question from whether the cost of accidents is dumped on individuals or the state, or whether the perpetrator pays. However, if the perp pays, they are more likely to worry about them, which may mean that safety regulation or pressure from union representatives can lead to efficiency gains.
As I said earlier on, and as Peter Dorman says, the annoying thing here is that the behavioural economics stuff could actually be useful here. Depending on whether you frame safety as an add-on gadget, or as an aspect of a well-tuned production system-of-systems, you’ll either practice it or you won’t! Also, if you have to practice it because it’s the law, you might be nudged – I believe this is the term, Your Honour – into adopting a process view and benefiting from it. And if you do that, you’re probably more likely to actually achieve safety than if you see it as a bolt-on minimal concession to show the English, as they say in Brazil.
Dorman also points out that behavioural economics has a lot to say about both managers’ and workers’ perceptions of risk. People find a lot of ways to deny and minimise dangers. And this is especially the case if they don’t believe anything can be done about it, or if they identify safety issues with social groups they perceive as hostile or just different.
But thanks to the power of framing, Frank can’t say anything about this. I think what’s happening here is that the process view challenges the role of employers as all-powerful within the firm. What the last 667 words have been basically saying is that constraint can be a source of creativity. We recognise this in all sorts of ways. When The Economist says that such and such a union workforce is sleepy and whatever, they’re saying that they need to be constrained to the objectives of efficiency. But for some reason they rarely think this about management.
This is the sort of thing I was driving at with the call centre series. Management and workers, but especially management, have got to a local maximum that’s basically pathological. Because improvement is framed as either a cost, or else a selection from the too-hard basket, nobody does anything.
As Chris Dillow once said, cognitive biases have a lot in common with ideology.