The recent tragic fire that killed 112 workers in a clothing factory in Bangladesh raises an interesting question in benefit-cost analysis: What is the economically optimal number of workers to die in industrial accidents such as factory fires or coal-mine explosions?
Yes, this is deliberately phrased to arouse those who think raising the question demonstrates how economics is an amoral discipline practiced by heartless brutes with no sense of human decency. As a teacher, I always have students who argue that to even think of placing a dollar value on human life is a moral transgression, and I am sure some readers will react in the same way.
If that is your reaction, you should know that within the discipline, I am way out on the wing in terms of acknowledging the limitations of what economic analysis can answer. But I also know that if one opts to reject all economic analysis in such questions, it is likely that there will be more deaths, more pain, more sorrow than there need be. So follow along, even if outraged.
Start at a personal level. I know my own life is worth something. It is not zero, but it is also not infinite. I am happy to pay $10 more for a chain saw with a brake that reduces my chance of injury from small to very small. I similarly am willing to pay several hundred dollars so our car can have air bags and other features that improve my chances of surviving a crash. But I would not pay another $1,000 for the saw or another $20,000 for the car to have these same features. (I dont have any choice in either of these cases, since the government mandates these safety features, but that is another issue.)
Or assume I had a deadly disease and had to pay for treatments out of pocket. Were I told, This treatment will cost $10,000 and will give you a 90 percent chance of keeping you alive for another five years instead of just a 15 percent chance, I would pull out my checkbook. But what if the trade-off were cash out all your assets to pay for this treatment; you wont have anything to leave to your wife and kids, but we can guarantee you a nice week with them before you die. Else you will go tonight. Id say goodbye to the wife and kids now.
Others might make somewhat different decisions, but it is clear there are situations in which we could improve our own satisfaction by making choices that implicitly put a value on our own lives.
Anyone knowing U.S. history who read of the Bangladesh tragedy may have thought of the 1911 Triangle Shirtwaist factory fire in New York City that killed 146 workers, mostly young women, mostly poor immigrants.
The similarities are remarkable: a multistory building, locked exits, piles of highly flammable materials, supervisors giving orders that proved deadly, inadequate fire departments.
Similarly, one cannot read of the frequent coal mine disasters in China that kill thousands per year without remembering our own history. In 1907, more than 3,200 U.S. coal miners died, a far higher per capita and per-ton-of-coal rate than in contemporary China.
Annual coal-mining deaths never fell below 2,000 until 1921 or below 1,000 until 1946. They averaged 31 per year over the past decade.
U.S. factory fires are rare, although 28 workers were killed and 55 injured behind illegally locked fire doors at Imperial Foods in Hamlet, N.C., in 1991.
Other workplace deaths are drastically reduced, although mining, construction, forestry and agriculture remain dangerous.
Government regulation combined with better technology can save lives.
So should Bangladesh and China adopt U.S. or European regulatory practices? Why dont they?
Economic theory and history demonstrate that as long as producers can externalize social costs in other words, force someone else to bear them competitive pressures or the simple desire for greater profits will keep them from spending money to reduce social costs such as worker injuries and deaths.
This is true even in cases like the Bangladesh clothing factory, Triangle Shirtwaist or Imperial Foods, where minuscule expenditures would have prevented the loss of many lives. As is true in many other circumstances, enhancing workplace safety diminishes marginal returns or increases marginal costs. In our country in 1907 or 1911, and in Bangladesh or China in 2012, very small expenditures of resources to reduce accidents and death can have large payoffs.
All that is needed is some mechanism, such as governmental legislation, to motivate such expenditures.
However, as more money is spent on safety and health, the cost per life saved inevitably rises. At some point, even the most compassionate people begin to question whether further expenditures are good for society.
Here, many still argue it is wrong to place any monetary price on a human life. But what if making Bangladeshi factories safer cost $100,000 per life saved? Of course, any human life anywhere must be worth that, many will respond. But even people who say the value of human life is infinite balk at expending much of their own money on a life in Asia. The resources to save lives in a country like Bangladesh must come from that country.
Opportunity cost the value of the alternatives given up when one chooses to commit resources to a specific use is inexorable.
Economist Edward Lotterman teaches and writes in St. Paul, Minn. Write him at email@example.com.