Shruti on Bhopal

If I were to write a post on Bhopal, I would write almost exactly what Shruti has written.

You can, if you wish, paint Bhopal as an example of rapacious profit-seeking corporations putting profits above human lives. You can argue that thatzwhy we need strong regulations. But your argument will run into the problem that Bhopal occurred in 1984, in the India of the license-permit-quota raj.† Not all the permissions that Union Carbide had to seek, not all the inspectors they were forced to bribe, could prevent the disaster from occurring. Once it did occur, the paternalistic State, instead of looking out for its children, sold them out.

So, if the failure of the free market makes the case for regulations, does the failure of regulation make the case for loosening them? Well, that’s not what usually happens.† We’re more likely to hear that Bhopal makes the case for strengthening the regulatory framework.† We don’t need deregulation. We need stronger, more effective regulations, the argument goes.† If we don’t have strong regulations, what is to prevent corporations from creating a Bhopal every other day in pursuit of profits?

Well, strict liability and the tort system, for one. If we could sue the pants off any company that dares to impose harm on third parties, we would see fewer industrial disasters.††If we junk half our regulations and use the resources†freed up to modernize our courts so that they deliver verdicts in months rather than decades, we will be much, much better off than we are. Shruti notes in her piece that the Indian government actively worked to minimize the compensation victims could claim from Union Carbide. This phenomenon is familiar, and has a name – regulatory capture.

5 thoughts on “Shruti on Bhopal

  1. Without meaning to deride / deny the point about strict liability, I would just like to repeat a comment I had made during the previous set of posts written by you on the same topic.

    Letís take the case of liability: The system of having strict liability is not problem-free, as you make it out to be. There are several avenues for corruption in the system i.e. apart from the ones stemming from a corrupt judiciary system. Read this story about a law firm which operated like a lawsuit factory suing corporations by co-opting with fake and corrupt litigants. In the story it is mentioned that lawsuits are such a nuisance to firms being sued that even when they know that they will eventually win, firms prefer to settle and get on with their business. In India meritless lawsuits will further burden the already overburdened courts. Big corporations of course can take recourse to highly paid lawyers and take the case to the end. However, small corporations are going to be exposed to an unecessary financial headache of dealing with frivolous lawsuits.

    A while back, Sebastian Mallaby had written a piece, giving the example of lawsuits against Merck regarding Vioxx, about how juries are biased against businesses and deliver verdicts without taking into consideration the complexities involved. So to suggest that strict liability is an ideal solution, (will prevent corruption and make companies more responsive to concerns) instead of regulation, is open to argument. Besides, billion dollar lawsuits can be absorbed by big corporations but small firms responsible for innovation and creative destruction will always find it difficult to survive in such a strict liability envvironment. Also, such lawsuits raise costs for average consumers. A company facing potential million dollar lawsuits will always factor in the cost of those frivolous lawsuits while pricing its products. It will raise costs by adding liability insurance, hiring of lawyers etc., which can be easily avoided by having a regulatory mechanism in place.

    Proliferation of such lawsuits will eventually lead to calls for tort reforms, as already happens in the US. The tort reform movement will be influenced by lobbies of big corporations. They will seek caps on punitive damages, argue that strict product liability thwarts innovation etc. Thus, they will try to create a scenario where, after already having eliminated the regulatory bodies, they donít want to be exposed to damages resulting from liability as well.

  2. I will answer the rest of your comment in a separate post, but do you realize how ridiculous your last paragraph sounds? And without the last paragraph, the rest of your comment, while valid, is significantly weakened.

    You are essentially saying that corporations, who, for decades, have been getting battered by frivolous lawsuits, hostile juries and populist politicians, will suddenly and magically acquire powers that will enable them to ram through “tort reform” that will not only undo the injustice that they have been facing, but also turn the dial so completely the other way that they will be free of any kind of risk from lawsuits. This will happen in the United States, where activism and protests are a way of life and making even the smallest change is fraught with controversy. Makes sense to you?

  3. “If we junk half our regulations and use the resources freed up to modernize our courts so that they deliver verdicts in months rather than decades, we will be much, much better off than we are.”

    Are these resources so easily ‘transformable’? Can it be done quickly, if at all? And what will be the impact of this change on the WIP cases and other systems?

    Slightly generic questions, but am wondering if this can be a realistic option. If it were to be planned out, how do you think the transition would unfold?

  4. While it is a good article, I thought it was a tad short. Could have made the point for a legal reformation and freeing up of the court/system even stronger. But perhaps she ran out of space?

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