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Wednesday, December 24, 2008

Underwriter's Laboratories: Case study in the free market

The Christian Science Monitor has a great article on Underwriter's Laboratories, the private, all voluntary, non-profit product safety tester whose logo ("UL" in a cirlce) appears on most items.

Underwriter's Laboratories is to questions about the necessity of specifically government safety oversight, as lighthouses were to insistences that the free and open market would not produce public goods. (Did I do that right? I never can tell...)

When people insist we need some sort of government-run food or safety inspection service, I always point to UL as an example of a perfectly well-functioning non-governmental organization that takes care of it.

As for the lighthouses -- two economists, Ronald Coase and Paul Samuelson, were in an argument. Samuelson said lighthouses were a perfect example of a public good, a good that the free and open market could not provide. Coase looked through some history books and found that there were plenty of privately-run lighthouses in England pre-1836.

Underwriter's Laboratories is like lighthouses. Here's a nice excerpt from the story:

Every product they test is at the request, and the expense, of its manufacturer, who seeks out UL not because it has to – no federal law mandates safety tests for most items – but because it’s cheaper and easier than a product-injury lawsuit, Drengenberg says. In fact, most retailers won’t stock a product if it hasn’t been safety tested. But it’s all voluntary, a tidy case study of the free market at its best: bottom-line drivers of consumer good.

And all UL has is their reputation:

“We have one weapon in the factory…. The UL mark,” says Drengenberg. So UL guards it carefully, through a rigorous documentation process. Every product tested is photographed, all of its parts cataloged, and every test performed described in detail. If it passes, the manufacturer puts it on the assembly line – but at some point during production, a UL inspector will show up, unannounced, for a spot-check, making sure the company is using all the same parts UL saw on the prototype.

“I’ve gone to factories in the Far East and said, ‘Where is the circuit board soldered? I have to measure the temperature of the solder,’ ” Drengenberg remembers. “So they put me in a car, take me down the street, down some alleys, and we enter somebody’s house, and there in the living room is the little solder pot, and a man and a woman are soldering circuit boards.”

Neat. Read the rest here.

Posted by P.M. Jaworski on December 24, 2008 | Permalink

Comments

Peter,

You're the second Canadian libertarian I know to write about UL and miss/ignore that the Canadian Standards Association (CSA) -- the Canadian equivalent -- is also private.

Posted by: Michael Cust | 2008-12-24 5:51:44 PM


Good article. As long as people believe that "government inspected" ensures that their food and whatever else they buy are safe, we shall be plagued with costly and useless government intervention and regulations.

Posted by: Alain | 2008-12-24 6:18:43 PM


As long as people believe that "government inspected" ensures that their food and whatever else they buy are safe, we shall be plagued with costly and useless government intervention and regulations.
Posted by: Alain | 2008-12-24 6:18:43 PM

Of course they could believe the manufacturers. Remember the DC-10? McDonnell Douglas convinced the airlines and the FAA that outward opening cargo doors were safer than inward opening doors. Unfortunately they weren't safer and had a fatal tendency to open in flight causing decompression, which resulted in the floor collapsing, cutting the hydraulic and electric control cables. After all that the aircraft had a tendency to hit the ground at very high speed at a sharp angle. I'll put my faith in the FAA or CAA. Flown a TU-134 lately? UTair Aviation claims they are perfectly safe and hope to retire them by 2015 or when they have all crashed.

Posted by: The Stig | 2008-12-24 8:06:16 PM


Good article. As long as people believe that "government inspected" ensures that their food and whatever else they buy are safe, we shall be plagued with costly and useless government intervention and regulations.

Posted by: Alain | 2008-12-24 6:18:43 PM

Further to that, you don't have to hunt very hard to find data that will teach you that the "government recommended diet" or daily intake, will kill you quick. But that's what governments do for their lobbyist pals.

I'll take an outfit like UL or as Michael points out, the CSA over an actual government bureaucracy any day. Bureaucrats don't care a whit about us.

Posted by: JC | 2008-12-24 9:14:45 PM



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