By Gordon Hull
We’ve all heard that regulations are bad, because they interfere with businesses doing what they want (rules about dumping toxic chemicals get in the way of dumping toxic chemicals. Laws against murder hamper the business model of assassins. And so on.). New North Carolina Senator Thom Tillis made the media rounds this week for some odd remarks he made on the topic. When asked to name a regulation he thought was bad, he came up with… the rule that restaurant employees wash their hands after visiting the toilet. He then proposed that it would be better to have restaurants state whether or not employees have to wash their hands, and then “let the market” take care of it.
There’s two obvious problems here, both of which have been pointed out a lot. One is that there’s a public health issue. The other is that he hasn’t actually reduced regulation: he’s just replaced a public health rule with a rule about signage. I actually think the second point is interesting, well beyond the “gotcha!” treatment it got, because it perfectly illustrates something about neoliberalism: it doesn’t think regulations that create markets are regulations (or, if you prefer, regulating to create markets is good, other regulations are bad. This is the same mindset that concludes that the hyper-regulated Chicago futures markets are unregulated). The cleanliness of restaurant operations is not something consumers can know much about on their own, since they don’t do things like follow employees to the restroom. In this sense restaurant sanitation is a credence good (you have to believe the restaurant; you can’t inspect the product before you buy it). Since dirty food preparation can make people very sick, rational consumers should be willing to pay more for the knowledge that their food is safely prepared. But since they won’t be in any position to know about food safety, except (maybe) for places they’ve eaten before, we can expect market failure until some mechanism arrives to help consumers make their decisions.
One way to deal with the problem is the status quo: require employees to wash their hands, and inspect restaurants for compliance with other safety issues, and make that information public. The other strategy is to make a market. For the neoliberal theorist, as Foucault points out and as Philip Mirowksi emphasizes forcefully, making a market is always the better policy, because markets always do a better job in allocating resources to those who want them. But the only way to make a market for food safety is to require restaurants to disclose their hand-washing policy, since consumers won’t otherwise know what they’re getting. With signage, consumers would then have the incentive to research which restaurants have good handwashing policies, and make appropriate decisions. Hence the rather odd spectacle of Tillis saying that the signage rule would be less regulation than the handwashing rule.
Of course, the public health argument ought to win here, even when you put your neoclassical economics hat on: even with the sign, restaurants in Tillis’ world have no incentive to enforce sanitation policies (which might cost them resources); their only incentive is to post a sign that they think the public wants to see, and in order to fix that incentive structure you need to … have the policy we have now in the status quo. It’s also hard to see how consumers would conduct the market research needed to know which restaurants were actually clean. It isn’t just that restaurants have an incentive to lie, thereby distorting the market (recall: this precise argument is used by Posner to say individuals don’t need privacy!). It’s also that you’d need a pretty big sample to conclude that any given illness was caused by a restaurant’s poor sanitation policies, but illness is going to be one of the better proxies for sanitation. I’m betting that people would use racial and other stereotypes to make their decisions.
Plus, the negative externalities of food borne illness are pretty high, so the regulatory cost of attempting to enforce sanitation rules is pretty low by comparison. In other words, sometimes, it’s worth going directly to the outcome you want, and prioritizing consumer safety. But I do think I have my new teaching example for the weirdness of the thesis that markets are always better.